- The USD/CAD has declined as the US dollar faces pressure from investors concerns, leading to a change away from American property.
- Greenback faces further challenges due to increasing trade tension between the US and China.
- Commodity-linked CAD can struggle with being subject to crude oil prices.
The USD/CAD continued the streak of its defeat for the fourth straight session, hovering around 1.3860 during Monday’s Asian trading hours. The decline is powered by a weak US dollar (USD), which puts pressure on a potential recession and frequent inflation by investor concerns, indicating a change away from the United States of America (US) assets.
Greenback also faces additional headwinds from growing trade tension between the US and China, which has ruled the possibility of global economic recession. On Friday, China’s Finance Ministry announced a rapid growth in tariffs on US goods, increasing 84% to 125% of duties. Following this move, President Trump’s earlier decision increased the tariff on sugar imports by 145%.
The economic data released at the end of last week was added to the cautious mood. Michigan University’s Consumer Affairs Index increased to 50.8 in April, while one year inflation expectations increased by 6.7%. Meanwhile, the US Productive Price Index (PPI) rose 2.7% year-on-year in March, decreasing by 3.2% in February, cooling the core inflation. The early unemployed claims exceeded 223,000, although continuous claims fell to 1.85 million, depicted a mixed picture of the labor market.
Speaking on the CBS face the nation on Sunday, the president of the Miniapolis Fed, Neil Kashshkari commented on the impact of the trade dispute: “It is the biggest hit for belief that I can remember in 10 years that I am in the fed – in addition to March 2020 when Kovid is the first hit.” Kashakari stressed that the economic decline would depend to a large extent on how fast the trade stress is resolved.
Although the announcement of the 90-day Trus of President Trump gave a glimpse of hope for a renewed conversation, widespread concerns about the US economic approach, inspired the capital flow towards Canada, strengthening the Canadian dollar (CAD).
However, the commodity-linked CAD may face some headwinds as oil prices remain under control, given that Canada is the largest oil exporter to the US. West Texas Intermediate (WTI) crude oil is trading less than $ 60.70 per barrel, which is concerned that increasing US-China trade tension can hinder global growth and reduce fuel demand.
Canadian Dollar FAQ
Bank of Canada (BOC), the major factor running Canadian dollars (CAD), is the level of the price of the health, inflation and business balance of Canada, the biggest exports of Canada, the health of the health vs. Canada’s export vs. Other factors include market sentiments-Investors are taking more risky assets (risk-per) or demanding safe-description (risk-closer)-with the risk of risk-CAD-positive. As its largest trading partner, the health of the US economy is also an important factor affecting Canadian dollars.
Bank of Canada (BOC) has a significant impact by determining the level of interest rates on Canadian dollars that banks can lend to each other. This affects the level of interest rates for all. The main goal of BOC is to maintain inflation at 1-3% by adjusting the interest rates up or down. The relatively higher interest rates for CAD are positive. Bank of Canada can also use quantitative spontaneity and tightening to affect the credit position with former CAD-negative and subsequent CAD-positive.
The price of oil is a major factor affecting the value of Canadian dollar. Petroleum is Canada’s largest export, so the price of oil has immediate effect on the CAD price. Generally, the CAD also increases if the price of oil increases, as the total demand for currency increases. If the price of oil falls, it is the opposite case. High oil prices are also as a result of the greater possibility of a positive business balance, which is also the support of the CAD.
While inflation was always traditionally considered as a negative factor for a currency because it reduces the value of money, the opposite has actually been a case in modern times with a discount of cross -border capital controls. High inflation motivates central banks to put in interest rates that attracts more capital flow from global investors who are looking for an attractive place to keep their money. This increases the demand for local currency, which is Canadian dollars in the case of Canada.
Macroeconomic data releases the health of the economy and can affect Canadian dollars. Indicators like GDP, manufacturing and services PMI, employment and consumer spirit survey can all affect the direction of CAD. A strong economy is good for Canadian dollars. Not only does it attract more foreign investment, but it can encourage the bank of Canada to keep interest rates, leading to a strong currency. If the economic data is weak, however, CAD is likely to fall.
