- The USD/CAD gains strength around 1,3880 in the Asian session on Thursday.
- The president of the Fed, Powell, said that the US growth seems to be slowing down.
- The Boc has paused its streak of seven consecutive rate cuts, maintaining its rate at 2.75% at the April meeting.
The USD/CAD pair quotes about 1,3880 during the first Asian session on Thursday. However, the bullish potential for the pair could be limited in the midst of the growing commercial uncertainties. Operators prepare for developments around US commercial conversations with their commercial partners.
The president of the Federal Reserve (FED), Jerome Powell, said on Wednesday that commercial tensions put at risk the employment and inflation objectives of Fed. Powell added that US economic growth seems to be slowing down, with a modest growth of consumer spending, an increase in imports to avoid tariffs that will probably weigh on the estimates of the gross domestic product (GDP) feeling. Financial markets expect the US Central Bank to resume the feat cuts in June and that by the end of the year the policy rate, currently in the range of 4.25%-4.50%, is a lower percentage point.
On the other hand, retail sales in the United States increased 1.4% in March, followed by the increase of 0.2% observed in February, according to the US Census Office on Wednesday. This figure was better than the 1.3%estimate. However, the strongest expected data failed to boost the dollar, since operators expect to see if the administration of the US president, Donald Trump, reaches new commercial agreements with their partners.
The Bank of Canada (Boc) maintained its reference rate at 2.75% at its April meeting on Wednesday, its first pause after seven consecutive cuts. The Canadian Central Bank said the uncertainty about US tariffs made it impossible to issue regular economic forecasts. Investors see almost 50% probability that 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.
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.
