- The USD/CAD falls further below 1,3900 while the Bill keeps interest rates in 2.75%, as expected.
- Governor of Bock Macklem warned that Trump’s tariff policies could impact business investment in Canada.
- Investors expect Fed Powell’s speech to obtain new orientations on monetary policy perspectives.
The USD/CAD pair extends its fall below 1,3900 during the American session on Wednesday. The torque weakens even more while the Bank of Canada (Boc) leaves its interest rates in 2.75%, as expected. This is the first meeting of interest rates since June in which the Central Bank has not reduced rates. Until now, Boc has cut its interest rates at 225 basic points (PBS).
The BOC has changed its position of “Dovish” to “maintain” while officials seek clarity about how the commercial policy of the president of the United States (USA), Donald Trump, will shape Canadian economic perspectives. “We will proceed with caution and we will be less forecast than usual until the situation is clarified,” said the governor of the BOC, Tiff Macklem. He warned that the available data increasingly point to a “considerable deceleration in business investment and household spending” before the reciprocal tariffs of President Trump.
Earlier in the day, the USD/CAD pair was already weak since the US dollar (USD) has backed away after an ephemeral recovery movement on Tuesday. The US dollar index (DXY), which tracks the value of the dollar against six main currencies, falls to about 99.50.
More falls in the US dollar seem likely in the midst of fears that the commercial war between the US and China could lead the economy to a recession. American companies lack the ability to increase their manufacturing capacity that could produce a similar amount of goods imported from China. Such scenario leads to supply problems and results in a slowdown in business activity.
The commercial war between the US and China intensified after Beijing announced to counteract the reciprocal tariffs imposed by Donald Trump in the so -called “day of liberation.”
Meanwhile, investors expect the speech of the president of the Federal Reserve (FED), Jerome Powell, at 17:30 GMT to obtain new orientations on interest rates.
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.
