USD/CAD falls to near 1.3650 due to renewed tariff threats from Trump
- USD/CAD depreciates as US Dollar declines following updated Trump’s tariff rates.
- President Trump announced new tariffs of up to 40% on 14 countries.
- The Canadian Dollar remains stable as the Prime Minister Office said that Canada was not targeted by the US tariffs.
USD/CAD depreciates after registering over 0.50% gains in the previous session, trading around 1.3650 during the Asian hours on Tuesday. The pair faces challenges as the US Dollar (USD) struggles, driven by market caution. This follows US President Donald Trump’s announcement of updated tariff rates on 14 countries that have yet to secure trade deals with Washington.
US President Donald Trump renewed his threat of a 25% tax on imports from Japan and South Korea and shared a batch of other letters to world leaders warning of levies from 1 August. Trump also imposed 25% rates on Malaysia, Kazakhstan and Tunisia, while South Africa would see a 30% tariff and Laos and Myanmar would face a 40% levy. Other nations hit with levies included Indonesia with a 32% rate, Bangladesh with 35%, and Thailand and Cambodia with duties of 36%.
President Trump has delayed the implementation of new tariffs from July to August 1, giving negotiators more time to reach agreements. He added, "I would say firm, but not 100% firm. If they call up and they say we'd like to do something a different way, we're going to be open to that."
The downside of the USD/CAD pair could be attributed to the stable Canadian Dollar (CAD), supported by the recent comments from the Prime Minister Office on Monday. The office said that Canada was not targeted by the global tariffs and has committed to reaching a bilateral agreement with the United States by July 21. However, the CAD may face challenges as Canada is subject to fentanyl-related US duties. Canada is likewise affected by Trump's tariffs on steel, aluminum, and cars.
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.
Author
Akhtar Faruqui
FXStreet
Akhtar Faruqui is a Forex Analyst based in New Delhi, India. With a keen eye for market trends and a passion for dissecting complex financial dynamics, he is dedicated to delivering accurate and insightful Forex news and analysis.
