- USD/CAD edges lower to 1,4365 in Wednesday’s late US session.
- The US CPI rose at the slowest pace of four months in February.
- BOC reduced its most important interest rate by 25 BPS Wednesday and referred to trade without saying the US for the decision.
USD/CAD pair is weakened to nearly 1,4365 during the late US session on Wednesday. The disadvantage of greenback may be limited in the midst of intense customs uncertainty from US President Donald Trump and fear of a US recession.
US inflation rose at the slowest pace of four months in February. Data released by work statistics on Wednesday showed that the US Consumer Price Index (CPI) rose 0.2% mother in February after a sharp advance of 0.5% in January. This number came in softer than the expectation of 0.3%. Core CPI, excluding volatile food and energy categories, 0.2% mother increased during the same period.
This inflation report caused speculation that the US Federal Reserve (FE) may reduce the rates before than previously assumed. This in turn can pull the US dollar (USD) lower against the Canadian dollar (CAD) in the short term.
As widely expected, the Bank of Canada (BOC) decided on Wednesday to reduce its most important interest rate by 25 basic points (BPS), which brought it down to 2.75%. This was Boc’s seventh consecutive interest rate. A step that comes a few hours after US President Donald Trump issued new steel and aluminum stars against Canada.
BOC Governor Tiff Macklem said during the press conference, “In recent months, the pervasive uncertainty has created by continuously changing US customs threats shaken business and consumer confidence.” Tu Nguyen, economist at RSM Canada, said the uncertainty made Canadian growth, and another round of customs in April could limit Boc’s opportunities even more. This may have some sales pressure on Loonia and help limit the loss of the couple.
Canadian frequently asked questions
The most important factors that drive the Canadian dollar (CAD) are the interest rate set by the Bank of Canada (BOC), the price of oil, Canada’s largest export, health in its economy, inflation and trade balance, which is the difference between the value of Canada’s export versus its import. Other factors include market mood-where investors take on more risky assets (risk-on) or seek safely ports (risk-off)-with risk-on CAD-positive. As its biggest trading partner, the health of the US economy is also a key factor affecting the Canadian dollar.
The Bank of Canada (BOC) has a significant impact on the Canadian dollar by setting the level of interest rates that banks can lend to each other. This affects the level of interest rates for everyone. BOC’s main target is to maintain inflation of 1-3% by adjusting interest rates up or down. Relatively higher interest rates tend to be positive for CAD. The Bank of Canada can also use quantitative easing and tightening to influence the credit conditions, with the former CAD-negative and the latter CAD-positive.
The price of oil is a key factor that affects the value of the Canadian dollar. Petroleum is Canada’s largest export, so the oil price tends to have an immediate impact on the CAD value. Generally, if the oil price rises, CAD also rises as the total demand for the currency rises. The opposite is the case if the price of oil falls. Higher oil prices also tend to result in a greater likelihood of a positive trade balance, which also supports CAD.
While inflation had always traditionally been considered a negative factor for a currency as it lowers the value of money, the opposite has actually been the case in modern times with the easing of cross -border capital control. Higher inflation tends to lead central banks to set up interest rates that attract more capital inflow from global investors seeking a lucrative place to keep their money. This increases the demand for the local currency, which in Canada’s case is the Canadian dollar.
Macroeconomic data releases measures the economy of the economy and may have an impact on the Canadian dollar. Indicators such as GDP, Manufacture and Services PMIs, Employment and Consumer Mood studies can all affect CAD’s direction. A strong economy is good for the Canadian dollar. Not only does it attract more foreign investment, but it can encourage the Bank of Canada to set up interest rates, leading to a stronger currency. However, if financial data is weak, CAD is likely to fall.