USD/CAD trades with mild gains above 1.3650 as Trump vows 50% tariff on copper
- USD/CAD posts modest gains around 1.3665 in Wednesday’s early Asian session.
- Trump said he will impose a 50% tariff on copper imports.
- Investors brace for the FOMC Minutes later on Wednesday.
The USD/CAD pair trades with mild gains near 1.3665 during the early Asian session on Wednesday. The Canadian Dollar (CAD) softens against the Greenback after US President Donald Trump reignited concerns following tariffs on Japan and South Korea. The release of the FOMC Minutes will take center stage later on Wednesday.
Trump said that he will announce a 50% tariff on imported copper on Tuesday and suggested that steeper sector-specific levies are forthcoming. Additionally, the US President also said he would soon announce tariffs “at a very, very high rate, like 200%,” on pharmaceutical imports.
US tariff uncertainty and potential new tariffs on copper imports weigh on the Loonie as Canada is a major producer of copper. The country has already been hit with hefty US tariffs on autos, steel and aluminum but has escaped sweeping US duties imposed in April. "There's a little bit of steam (coming) out of the loonie, primarily driven by risk aversion, as these tariffs have basically come back to the forefront," said Rahim Madhavji, president at KnightsbridgeFX.com.
Nonetheless, Canadian Prime Minister Mark Carney and Trump were scheduled to reach a form of trade agreement by July 21. Any positive developments surrounding the US-Canada trade agreement might help limit the CAD’s losses.
The minutes from the June Federal Reserve meeting might offer some hints about how Federal Reserve (Fed) officials view the US economy and interest rate path. Any dovish comments from Fed policymakers could drag the Greenback lower against the CAD.
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
FXStreet
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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