- The USD/CAD advances as the relaxation of tensions between the US and China supports the US dollar.
- China’s decision to exempt certain US imports from its 125% tariffs have aroused hope of improving commercial relations.
- The CAD, linked to raw materials, remains under pressure as crude oil prices further affect feeling.
The USD/CAD is advancing for the second consecutive session, around 1,3880 during Monday’s Asian negotiation hours. The pair continues to strengthen as the US dollar (USD) gains impulse, supported by signals of relaxation of tensions between the US and China.
On Friday, Fuentes reported that China exempted certain US imports of its 125%tariffs, feeding the optimism that the prolonged commercial dispute between the two largest economies in the world could be close to resolving. However, Reuters cited a spokesman for the Chinese embassy that 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.”
The American dollar index (DXY), which tracks the USD in front of a basket of six main currencies, is also registering profits for the second consecutive day, quoting about 99.70 at the time of writing. Meanwhile, the Federal Reserve (FED) is in a period of silence before the meeting of the Federal Open Market Committee (FOMC) scheduled for May 7.
Adding to the complex situation, the US Secretary of Agriculture, Brooke Rollins, mentioned Sunday, according to Reuters, that the Trump administration is committed to daily discussions with China on tariffs. Rollins stressed that not only conversations are ongoing, but commercial agreements with other countries are also supposedly “very close.”
On the other hand, the Canadian dollar (CAD), linked to raw materials, faces pressure due to the fall in crude oil prices. West Texas Intermediate (WTI) oil prices continue to fall as advances in nuclear negotiations between the US and Iran increase the possibility that Iranian crude returns to the market. In addition, the expectations that the organization of oil exporting countries and its allies, known as OPEP+, could increase production for the second consecutive month have further weighed more about oil prices.
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.
