The USD / CAD extends up over 1.3950 over an American dollar after the US-Chinese-Chinese trade discussions
- The USD / CAD is gaining momentum at around 1.3975 during the first Asian session on Tuesday.
- Schedule trade tensions between the United States and China raises the US dollar.
- Higher prices of crude oil could stimulate the Huard and cap the advantages of the pair.
The USD / CAD pair extends the rally to around 1.3975 during the first Asian session on Tuesday, reinforced by a stronger US dollar (USD). The Canadian dollar (CAD) has marked its lowest point since April 10 against the greenback since April 10 after a US-Chinese trade agreement has given the American currency a boost.
The relaxation of trade tensions between the two largest economies in the world gives investors their clearest indication, but US President Donald Trump adopts a softer than expected approach. This raises the hope that the American economy can avoid a recession, which, in turn, raises the US dollar.
“The resistance continues in the DOxy (US Dollar Index) should maintain the HUARD under pressure at the next negotiation session,” said Karim Francis, head of monetary risk management, North America, at Convra Canada ULC.
Investors now expect the American Federal Reserve (Fed) to reduce its interest rates only twice in 2025. Exchanges linked to Fed meetings now promote a reduction in 25 base points (BPS) in September. Last week, they indicated three cups this year, with a probable change in July.
Meanwhile, an increase in crude oil prices could underpin the loonia linked to basic products and cap the advantages of the pair. It should be noted that Canada is the largest oil exporter to the United States, and higher crude oil prices tend to have a positive impact on CAD value.
Canadian dollar FAQ
The key factors at the origin of the Canadian dollar (CAD) are the level of interest rate set by the Bank of Canada (BOC), the price of oil, the largest export in Canada, the health of its economy, inflation and trade balance, which is the difference between the value of exports of Canada compared to its imports. Other factors include the feeling of the market – that investors have more risky assets (risk) or are looking for safety havens (risk) – with the risk for the positive CAD. As the most important trading partner, the health of the American economy is also a key factor influencing the Canadian dollar.
The Bank of Canada (BOC) has a significant influence on the Canadian dollar by fixing the level of interest rate that banks can lend each other. This influences the level of interest rate for everyone. The main objective of the BOC is to maintain inflation to 1 to 3% by adjusting increased or declining interest rates. Relatively higher interest rates tend to be positive for CAD. The Bank of Canada can also use a quantitative softening and tightening to influence credit conditions, with the old cad-negative and the last positive frame.
The price of oil is a key factor with an impact on 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 CAD value. Generally, if the price of oil increases, the CAD also increases, because the overall demand for money increases. The reverse is the case if the price of oil decreases. The higher oil prices also tend to lead to a greater probability of a positive trade balance, which also supports CAD.
Although inflation has always been considered a negative factor for a currency because it reduces the value of money, the reverse was in fact the case in modern times with the relaxation of cross -border capital controls. A higher inflation tends to lead central banks to set up interest rates that attract more capital entries from global investors looking for a lucrative place to keep their money. This increases demand for local currency, which in the case of Canada is the Canadian dollar.
Macroeconomic data versions assess the health of the economy and may have an impact on the Canadian dollar. Indicators such as GDP, Manufacturing and PMIS services, employment and surveys on consumer feelings can all influence CAD management. A strong saving is good for the Canadian dollar. Not only does it attract more foreign investment, but it can encourage the Bank of Canada to install interest rates, which leads to a stronger currency. If the economic data is low, however, CAD is likely to decrease.
