- The USD/CAD weakens due to the expectations that the Liberal Party in the power of Canada will retain power after Monday’s elections.
- Liberals must ensure the 172 seats required for a majority in the House of Commons of 343 seats.
- The US dollar finds support in the middle of relaxation signals of commercial tensions between the US and China.
The USD/CAD pair is under pressure per second consecutive session, around 1,3820 during the Asian negotiation hours on Tuesday. The torque weakens as the Canadian dollar (CAD) wins modestly, supported by the preliminary electoral results in Canada.
According to CTV News and CBC projections, the Liberal Party in the Power of Canada has retained power after Monday’s elections, although it is still uncertain if they will ensure a majority. Prime Minister Mark Carney had sought a strong mandate to manage tariffs and annexation threats from US President Donald Trump. However, CBC reported that the liberals had not yet secured the 172 seats necessary for a majority in the 343 seats chamber.
The final result may take to confirm, particularly since the results of British Columbia, where the polls closed later, could be decisive. Meanwhile, the conservative party, with the right trend, showed a stronger performance than expected, advocating for a change after more than nine years of liberal leadership. If Carney ends up leading a minority government, you will need to negotiate with other parties to maintain power, a situation that historically results in Canadian governments that do not last more than approximately 2.5 years.
Despite the strength of the CAD, the additional fall potential for the USD/CAD can be limited by the broader resilience of the US dollar (USD). The USD finds support in relaxation signals of commercial tensions between the US and China. US President Donald Trump indicated his willingness to reduce tariffs on China, while Beijing announced tariff exemptions for certain US assets, which increases hope that the prolonged commercial war between the two largest economies in the world could be coming to an end.
President Trump said he had advanced and that he had spoken with Chinese President Xi Jinping. However, a spokesman for the Chinese embassy firmly denied any ongoing negotiation, stating: “China and the US are not having any consultation or negotiation on tariffs,” and urged Washington to “stop creating confusion.”
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.
