USD/CAD remains on the defensive near 1.3600 ahead of US CPI data


content provided with permission by FXStreet


  • USD/CAD
    trades
    on
    a
    weaker
    note
    around
    1.3615
    in
    Thursday’s
    early
    Asian
    session. 

  • Fed’s
    Powell
    said
    the
    central
    bank
    will
    cut
    rates
    when
    ready,
    regardless
    of
    the
    political
    calendar. 

  • A
    rise
    in
    Canada’s
    Unemployment
    Rate
    has
    prompted
    the
    BoC
    to
    consider
    cutting
    interest
    rates
    in
    July,
    ING
    analyst
    said. 


The
USD/CAD
pair

remains
under
selling
pressure
near
1.3615
during
the
early
Asian
session
on
Thursday.
Meanwhile,
the
USD
Index
(DXY)
extends
its
consolidation
above
the
105.00
hurdle
as
traders
await
the
key
US
inflation
report.
The
US
Consumer
Price
Index
(CPI)
data
for
June
is
due
on
Thursday,
along
with
the
weekly
Initial
Jobless
Claims
and
speeches
by
the
Federal
Reserve’s
(Fed)

Raphael
Bostic

Fed
Chair
Jerome
Powell
responded
to
questions
before
the
House
Financial
Services
Committee
on
Wednesday.
Powell
said
that
the
central
bank
will
make
interest
rate
decisions
based
on
the
data,
the
incoming
data,
the
evolving

outlook
,
and
the
balance
of
risks,
and
not
in
consideration
of
political
factors. 

He
further
stated
that
the
Fed
won’t
wait
until
US
inflation
slows
to
its
2%
target
before
it
cuts
interest
rates.
The
probability
of
the
Fed
leaving
the
policy
rate
unchanged
in
September
stood
at
nearly
25%
following
this
event,
according
to
the
CME
FedWatch
Tool. 

On
the
Loonie
front,
the
decline
of
crude
oil
prices
might
undermine
the
commodity-linked Canadian
Dollar
(CAD)
as
Canada
is
the
major
crude
oil
exporter
to
the United
States.

Furthermore,
ING’s
FX
analyst
Francesco
Pesole
said
that
a
rise
in
the
Canadian
Unemployment
rate
has
put
a
July
Bank
of
Canada
(BoC)
rate
cut
on
the
table.
The
financial
markets
have
priced
in
16
basis
points
(bps) 
of
easing
for
July. 

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.