EUR/CAD drifts higher to near 1.6000 ahead of Canadian employment release
- EUR/CAD trades on a positive note around 1.5995 in Friday’s early European session.
- Trump threatened 35% tariffs on Canadian goods.
- Investors brace for the Canadian employment report for June, which is due later on Friday.
The EUR/CAD cross edges higher to near 1.5995 during the early European trading hours on Friday. The Canadian dollar weakens against the Euro (EUR) after US President Donald Trump announces new tariffs. Investors await the release of the Canadian employment report for June, which will be released later on Friday.
Late Thursday, Trump said he will impose a 35% tariff on Canadian goods starting on August 1. The announcement came along with additional threats of blanket tariffs of 15% or 20% on most trade partners. Canadian Prime Minister Mark Carney said his government would continue to protect Canadian workers and businesses as they worked towards the new deadline.
The Canadian June employment report will be in the spotlight later on Friday. The Unemployment Rate in Canada is expected to tick higher to 7.1% in June from 7.0% in May. Furthermore, investors forecast the economy will add no jobs in the same month, reversing May’s 8.8K increase. Any signs of cooling in the Canadian labor market could favor additional rate cuts, weighing on the CAD.
On the Euro front, investors will closely monitor the developments surrounding the EU and US trade deal. Trump stated that the members of the EU would get letters notifying them of new tariff rates "in the coming days.” The uncertainty around Trump’s evolving trade policy could undermine the EUR against the CAD in the near term.
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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