- The USD/CAD drops to about 1,4295 in the Tuesday’s late American session.
- The USM manufacturing PMI of the US fell to contraction territory below 50 in March.
- Trump is ready to implement tariffs on US business partners on Wednesday.
The USD/CAD pair extends the fall to around 1,4295 during the Tuesday’s late American session. The US dollar (USD) weakens against the Canadian dollar (CAD) after the US economic data showed weakness in the manufacturing sector before the Trump administration tariff advertisements scheduled for Wednesday.
The manufacturing in the US contracted in March, with the Purchase Manufacturing Management Index (PMI) of ISM manufacturing falling to 49.0 from 50.3 in February. This figure was below the market expectation of 49.5. This occurs in the midst of growing concerns about how much tariffs will increase prices for consumers and companies.
Trump said he will impose “reciprocal tariffs” on Wednesday, suggesting that many countries with their own tariffs on US products could suddenly face new commercial barriers. The White House declared that Trump’s next tariffs will take effect just after being announced on Wednesday. However, the lack of clarity about commercial policies, including the scope and severity of tariffs and how they will be calculated, could undermine the dollar in the short term.
Meanwhile, an increase in crude oil prices could benefit the Canadian dollar linked to raw materials in the short term and create a wind against the USD/CAD. It is worth noting that Canada is the largest oil exporter to the United States (USA), 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.
