- USD/CAD trades with mild gains around 1.3740 in Tuesday’s Asian session.
- Traders await the US PPI data on Tuesday for fresh impetus.
- Higher crude oil prices and hopes of a Fed rate cut in September might underpin the CAD in the near term.
The USD/CAD pair trades on a stronger note near 1.3740 during the Asian session on Tuesday. Traders prefer to wait on the sidelines ahead of key US data releases. The US Producer Price Index (PPI) will take centre stage later in the day, along with the speech by the Federal Reserve’s (Fed) Raphael W. Bostic.
The Greenback trades in a consolidative theme amid a flattish mood in global markets. Traders will take more cues from the US PPI data on Tuesday. The PPI is estimated to ease to 2.3% YoY in July from 2.6%, while the Core PPI is forecasted to drop to 2.7% YoY in July from the previous reading of 3.0%. This report could provide some insight about the US rate.
Analysts from BBH Global Currency Strategy noted that a 50 basis points (bps) rate cut by the Fed is possible but will fully depend on the data, with nearly 55% odds priced in now. The softer key US economic data this week might trigger the chance that the Fed will cut rates more aggressively in September, which might drag the USD lower against its rivals.
Fed Governor Bowman said on the weekend that the progress in lowering inflation in recent months is a welcome development, but inflation is still uncomfortably above the Fed’s 2% target. Bowman further stated that she will remain cautious in her approach to considering adjustments to the policy.
The Bank of Canada (BoC) is expected to cut rates by 25 bps two more times this year, at the September and October meetings. This, in turn, is likely to cap the upside for the Canadian Dollar (CAD). However, the rise of crude oil prices due to rising geopolitical concerns in the Middle East and hopes of the start of the easing cycle by the Fed in September might underpin the CAD. It's worth noting that higher oil prices generally support the CAD lower as Canada is the leading exporter of Oil to the United States (US).
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.
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.
If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.
FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.
The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.
Recommended content
Editors’ Picks
EUR/USD struggles to retain 1.1500 as USD gains traction
EUR/USD hovers around the 1.1500 level in the American session on Friday. The US Dollar surges despite dovish comments from Fed Governor Waller, supporting a rate cut as soon as July. The mood sours as investors weigh Middle East developments.
GBP/USD dives below 1.3500 after weak UK data, resurgent USD
GBP/USD turned red for the day and approaches the 1.3450 area as the week comes to an end. Earlier in the day, the UK reported weak Retail Sales figures, although the ongoing slump seems related to renewed risk aversion fueling safe-haven US Dollar demand.
Gold surges above $3,3360 as fears kick in
Gold gathers near-term momentum and trades near $3,370 ahead of the weekly close, as risk sentiment took a turn to the south. Following a positive start, Wall Street turned south. Middle East tensions and massive back-and-forth missile exchanges between Iran and Israel seem to be behind the ongoing run to safety.
Ripple Price Prediction: How tokenized treasuries could accelerate XRP to $10 by end-2025
Ondo Finance launched tokenized treasuries on the XRP Ledger in June, paving the way for seamless institutional adoption. The market capitalization of tokenized treasuries has grown to $5.9 billion despite market uncertainty over US tariffs.
Weekly focus: War and risk of escalation weigh on market sentiment
The war between Israel and Iran and the risk of further escalation weighed on markets this week. Equity markets largely traded in red and US treasury yields slid lower. That said, markets were by no means in full risk-off sentiment.
The Best brokers to trade EUR/USD
SPONSORED Discover the top brokers for trading EUR/USD in 2025. Our list features brokers with competitive spreads, fast execution, and powerful platforms. Whether you're a beginner or an expert, find the right partner to navigate the dynamic Forex market.