- The USD / CAD is weakening due to the expectations that the Canada Liberal Party will retain power after the elections on Monday.
- Liberals must secure the 172 seats required for a majority in the House of Commons with 343 places.
- The US dollar finds support in the middle of signs of softening American-Chinese trade tensions.
The USD / CAD pair remains under pressure for the second consecutive session, oscillating approximately 1,3820 during Asian negotiation hours on Tuesday. The pair is weakening as the Canadian dollar (CAD) wins modestly, supported by the results of early elections in Canada.
According to CTV News and CBC projections, the Canada Liberal Party has retained power after the elections on Monday, although it remains uncertain if they will get the majority. Prime Minister Mark Carney had asked for a strong mandate to manage the prices and annexed threats from US President Donald Trump. However, CBC reported that the Liberals had not yet secured the 172 seats necessary for the majority of the House of Commons with 343 places.
The end result can take time to confirm, in particular as the results of British Columbia, where the polls were closed last, could prove to be decisive. Meanwhile, the right -wing conservative party has shown a stronger performance than expected, pleading for change after more than nine years of liberal leadership. If Carney ends up leading a minority government, he will have to negotiate with other parties to maintain power – a situation which historically leads to Canadian governments for approximately 2.5 years.
Despite the strength of the CAD, the additional drop for the USD / CAD can be limited by a wider resilience in US dollars (USD). The USD finds support in the middle of signs of softening American-Chinese trade tensions. US President Donald Trump said a desire to retreat the prices on China, while Beijing has announced tariff exemptions for certain American goods, which has hoped that the prolonged trade war between the two largest economies in the world will be able to end.
President Trump noted that progress had been made and that he had spoken with Chinese President Xi Jinping. However, a spokesperson for the Chinese embassy has firmly denied any negotiations in progress, declaring: “China and the United States have no consultation or negotiations on prices” and urged Washington to “stop creating confusion”.
Canadian dollar FAQ
The key factors at the origin of the Canadian dollar (CAD) are the level of interest rate set by the Bank of Canada (BOC), the price of oil, the largest export in Canada, the health of its economy, inflation and trade balance, which is the difference between the value of exports of Canada compared to its imports. Other factors include the feeling of the market – that investors have more risky assets (risk) or are looking for safety havens (risk) – with the risk for the positive CAD. As the most important trading partner, the health of the American economy is also a key factor influencing the Canadian dollar.
The Bank of Canada (BOC) has a significant influence on the Canadian dollar by fixing the level of interest rate that banks can lend each other. This influences the level of interest rate for everyone. The main objective of the BOC is to maintain inflation to 1 to 3% by adjusting increased or declining interest rates. Relatively higher interest rates tend to be positive for CAD. The Bank of Canada can also use a quantitative softening and tightening to influence credit conditions, with the old cad-negative and the last positive frame.
The price of oil is a key factor with an impact on the value of the Canadian dollar. Oil is the largest export in Canada, so the price of oil tends to have an immediate impact on CAD value. Generally, if the price of oil increases, the CAD also increases, because the overall demand for money increases. The reverse is the case if the price of oil decreases. The higher oil prices also tend to lead to a greater probability of a positive trade balance, which also supports CAD.
Although inflation has always been considered a negative factor for a currency because it reduces the value of money, the reverse was in fact the case in modern times with the relaxation of cross -border capital controls. A higher inflation tends to lead central banks to set up interest rates that attract more capital entries from global investors looking for a lucrative place to keep their money. This increases demand for local currency, which in the case of Canada is the Canadian dollar.
Macroeconomic data versions assess the health of the economy and may have an impact on the Canadian dollar. Indicators such as GDP, Manufacturing and PMIS services, employment and surveys on consumer feelings can all influence CAD management. A strong saving is good for the Canadian dollar. Not only does it attract more foreign investment, but it can encourage the Bank of Canada to install interest rates, which leads to a stronger currency. If the economic data is low, however, CAD is likely to decrease.
