- The USD/Corcator impulse towards 1,3885 in the first bars of the European session on Thursday.
- Powell de la Fed said the Central Bank is in no hurry to reduce interest rates.
- The BLT maintained its policy rate at 2.75% at its April meeting on Thursday.
The USD/CAD pair is strengthened about 1,3885 during the first bars of the European session on Thursday. The hard line comments of the president of the Federal Reserve (FED), Powell, and the increase in retail sales provide some support to the dollar. The volume of operations is expected to be light before Good Friday’s holidays.
Powell of the Fed recognized on Wednesday that the increase in tariffs could feed inflation while undermining growth, complicating the way for decisions about interest rates. Powell said: “At the moment, we are well positioned to expect greater clarity before considering any adjustment to our policy position.” Their comments reduced the probability of a reduction of Fed rates in June, which raises the US dollar (USD) against the Canadian dollar (CAD).
The Bank of Canada (BOC) maintained on Wednesday the night interest rate without changes for the first time since its flexibility cycle began last June. The BOC emphasized the weakening of the economic environment, including a slowdown in Canadian consumption and economic uncertainty. The markets had valued by 50% the possibility that the BOC returns to flexibility in their next policy decision at the June meeting and expect two additional reductions in total by the end of the year, according to a Bloomberg survey.
Meanwhile, a recovery in crude oil prices could support the Loonie linked to raw materials. It is worth noting that Canada is the largest oil exporter to the US, and the highest prices of crude oil tend to have a positive impact on the value of the CAD.
Canadian dollar faqs
The key factors that determine the contribution of the Canadian dollar (CAD) are the level of interest rates set by the Bank of Canada (BOC), the price of oil, the main export product of Canada, the health of its economy, inflation and commercial balance, which is the difference between the value of Canadian exports and that of its imports. Other factors are market confidence, that is, if investors bet on riskier assets (Risk-on) or seek safe assets (Risk-Off), being the positive risk-on CAD. As its largest commercial partner, the health of the US economy is also a key factor that influences the Canadian dollar.
The Canada Bank (BOC) exerts a significant influence on the Canadian dollar by setting the level of interest rates that banks can provide with each other. This influences the level of interest rates for everyone. The main objective of the BOC is to maintain inflation between 1% and 3% by adjusting interest rates to the loss. Relatively high interest rates are usually positive for CAD. The Bank of Canada can also use quantitative relaxation and hardening to influence credit conditions, being the first refusal for CAD and the second positive for CAD.
The price of oil is a key factor that influences the value of the Canadian dollar. Oil is the largest export in Canada, so the price of oil tends to have an immediate impact on the value of the CAD. Generally, if the price of oil rises, the CAD also rises, since the aggregate demand of the currency increases. The opposite occurs if the price of oil drops. The highest prices of oil also tend to give rise to a greater probability of a positive commercial balance, which also supports the CAD.
Although traditionally it has always been considered that inflation is a negative factor for a currency, since it reduces the value of money, the opposite has actually happened in modern times, with the relaxation of cross -border capital controls. Higher inflation usually leads to central banks to raise interest rates, which attracts more capital of world investors who are looking for a lucrative place to save their money. This increases the demand for the local currency, which in the case of Canada is the Canadian dollar.
The published macroeconomic data measure the health of the economy and can have an impact on the Canadian dollar. Indicators such as GDP, manufacturing and services PMIs, employment and consumer confidence surveys can influence the CAD direction. A strong economy is good for the Canadian dollar. Not only attracts more foreign investment, but it can encourage the Bank of Canada to raise interest rates, which translates into a stronger currency. However, if the economic data is weak, the CAD is likely to fall.
Source: Fx Street
I am Joshua Winder, a senior-level journalist and editor at World Stock Market. I specialize in covering news related to the stock market and economic trends. With more than 8 years of experience in this field, I have become an expert in financial reporting.
