- The USD/CAD is weakened as April’s Beige Book of the Fed underlines the potential negative impact of tariffs on economic perspectives.
- The US dollar also loses ground after the preliminary compound PMI indicated a slowdown in general business activity.
- President Trump suggested that the 25% tariff on Canadian car imports to the US could be increased.
The USD/CAD moves down around 1,3870 during Thursday’s Asian session, after rising approximately 0.50% the previous day. The torque is under pressure as the US dollar (USD) weakens after the April Beige book of the Federal Reserve, which pointed to deteriorated economic conditions.
The report highlighted the growing concerns about tariffs, which have negatively impacted on the economic perspectives in multiple regions of the US consumer seemed uneven, and the conditions of the labor market softened, with many districts indicating stagnant employment or slightly in decline.
In addition, the US dollar was pressed by the mixed data of the PMI of Global S&P on Wednesday. The preliminary compound PMI fell to 51.2 from 53.5, pointing out a slowdown in business activity. While the manufacturing PMI rose slightly to 50.7, the PMI of services fell dramatically to 51.4 from 54.4, reflecting a weaker demand in the services sector. Chris Williamson of S&P Global said that the impulse of growth is decreasing, with persistent inflation that complicates the Fed policy perspective.
However, the USD/CAD torque was seen on Wednesday while the Canadian dollar (CAD) was still under pressure. This happened after US president Donald Trump suggest that a 25% tariff on Canadian cars imports to the US could be increased. Trump emphasized efforts to reach an agreement with Canada, with the aim of increasing cars production in the US and reducing the dependence of foreign vehicles, according to Reuters.
Meanwhile, the Canadian dollar (CAD) also faces difficulties due to the downward review of the International Monetary Fund (IMF) of the Canada’s GDP growth forecast by 2025 to 1.4%, which has renewed concerns about the weakening of domestic demand. In addition, the decision of the Bank of Canada (BOC) to maintain its reference interest rate by 2.75% underlines a cautious posture, partly influenced by continuous uncertainty around the possible US tariffs.
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.
