USD/CAD rises to near 1.3750 ahead of BoC Business Outlook Survey
- USD/CAD appreciates amid market caution, driven by the prevailing US-Canada trade tensions.
- Traders await further development on the US-Canada trade deal after Mark Carney dispatched a trade envoy to Washington.
- The commodity-linked Canadian Dollar could find support from stable crude Oil prices.
USD/CAD attempts to retrace its recent losses from the previous session, trading around 1.3730 during the early European hours on Monday. The pair appreciates as the Canadian Dollar (CAD) struggles amid ongoing trade tensions. Traders are likely observing the release of the Bank of Canada (BoC) Business Outlook Survey, set to be published later in the North American session, for fresh directional cues.
US President Donald Trump threatened a 35% tariff on goods imported from Canada. However, Canadian Prime Minister Mark Carney has sent a trade envoy to Washington for last-ditch talks with President Trump ahead of the August 1 deadline for 35% steel and aluminum tariffs. The move offers markets some hope that key industrial inputs for Canada may remain tariff-free.
Moreover, US Commerce Secretary Howard Lutnick called the notion of US free trade with Canada is dead "silly" and mentioned that a substantial amount of Canadian goods enter the US tariff-free under the current North American free trade deal.
The upside of the USD/CAD pair could be restrained as the commodity-linked Canadian Dollar (CAD) could receive support from the stable crude Oil prices. West Texas Intermediate (WTI) Oil price is trading around $66.00 per barrel at the time of writing.
Crude Oil prices receive support from ongoing supply concerns following the European Union's (EU) last week’s fresh sanctions on Russian Oil. The EU has approved its 18th round of sanctions against Moscow in response to the ongoing war in Ukraine. The latest measures include a reduced price cap on Russian Oil, tighter banking restrictions, and a ban targeting a major Indian Oil refinery.
Canadian Dollar FAQs
The key factors driving the Canadian Dollar (CAD) are the level of interest rates set by the Bank of Canada (BoC), the price of Oil, Canada’s largest export, the health of its economy, inflation and the Trade Balance, which is the difference between the value of Canada’s exports versus its imports. Other factors include market sentiment – whether investors are taking on more risky assets (risk-on) or seeking safe-havens (risk-off) – with risk-on being CAD-positive. As its largest trading partner, the health of the US economy is also a key factor influencing the Canadian Dollar.
The Bank of Canada (BoC) has a significant influence on the Canadian Dollar by setting the level of interest rates that banks can lend to one another. This influences the level of interest rates for everyone. The main goal of the BoC is to maintain inflation at 1-3% by adjusting interest rates up or down. Relatively higher interest rates tend to be positive for the CAD. The Bank of Canada can also use quantitative easing and tightening to influence credit conditions, with the former CAD-negative and the latter CAD-positive.
The price of Oil is a key factor impacting the value of the Canadian Dollar. Petroleum is Canada’s biggest export, so Oil price tends to have an immediate impact on the CAD value. Generally, if Oil price rises CAD also goes up, as aggregate demand for the currency increases. 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 is also supportive of the CAD.
While inflation had always traditionally been thought of as a negative factor for a currency since it lowers the value of money, the opposite has actually been the case in modern times with the relaxation of cross-border capital controls. Higher inflation tends to lead central banks to put up interest rates which attracts more capital inflows from global investors seeking a lucrative place to keep their money. This increases demand for the local currency, which in Canada’s case is the Canadian Dollar.
Macroeconomic data releases gauge 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 sentiment surveys can all influence the direction of the CAD. A strong economy is good for the Canadian Dollar. Not only does it attract more foreign investment but it may encourage the Bank of Canada to put up interest rates, leading to a stronger currency. If economic data is weak, however, the CAD is likely to fall.
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