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USD/CAD flat lines above 1.4300 amid hope for softer Trump tariff stance

  • USD/CAD holds steady around 1.4320 in Monday’s late American session. 
  • Trump said he may give some countries breaks on reciprocal tariffs.
  • Higher Crude Oil prices might boost the commodity-linked Loonie. 

The USD/CAD pair trades on a flat note near 1.4320 during the late American session on Tuesday. The pair consolidates in a narrow trading range amid further confusion about US President Donald Trump's plans for the tariff announcement scheduled for April 2. The US Conference Board’s Consumer Confidence gauge, New Home Sales and the Richmond Fed Manufacturing Index will be published later on Tuesday. 

Trump said late Monday that he will announce tariffs on automobile imports in the coming days and indicated that some countries will receive breaks from reciprocal tariffs on April 2. Trump signaled trading partners would receive possible exemptions or reductions.

However, Trump also stated that he planned to proceed with sector-specific tariffs on lumber and semiconductors and repeated his threat to impose duties on pharmaceutical drugs in “the very near future.” Investors remain concerned over a potential rise in inflation and recession ahead of Trump’s reciprocal tariffs. This, in turn, might exert some selling pressure on the Greenback against the Canadian Dollar (CAD). 

Meanwhile, a rise in Crude Oil prices could boost the commodity-linked Loonie and create a headwind for USD/CAD. It’s worth noting that Canada is the largest oil exporter to the United States (US), and higher crude oil prices tend to have a positive impact on the CAD value. Nonetheless, hopes for a positive outcome from Russia-Ukraine peace talks could weigh on the black gold, which undermines the Loonie and helps limit the USD/CAD pair’s losses. 

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

Lallalit Srijandorn

Lallalit Srijandorn is a Parisian at heart. She has lived in France since 2019 and now becomes a digital entrepreneur based in Paris and Bangkok.

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