- USD / CAD increases slightly while the USD index earns almost 0.5% above 100.00.
- The US dollar increases despite the PMI contracts for the United States manufacturing at a faster rate in April.
- The BOC believes that the impact of previous interest rate reductions has not yet been transmitted to the economy.
The USD / CAD pair is higher at nearly 1,3820 during North American negotiation hours on Thursday. The pair of Loonie moves slightly higher despite the USD dollar (USD) attracted significant offers after the publication of data from the United States purchasing managers (United States).
The US dollar index (DXY) increased almost 0.5% above 100.00 despite the agency said that manufacturing activities have continued to decrease at a faster rate. The Manufacturer PMI arrived at 48.7, less than the reading of March 49.0, but higher than the estimates of 48.0. A figure below the 50.0 threshold indicates a contraction in economic activities.
The prospects of the US dollar are already dark in the midst of uncertainty on trade relations between the United States and China. The comments of the White House said that the two nations have not yet started commercial discussions.
On Wednesday, the US trade representative declared in an interview with Fox News that trade discussions with Beijing had not yet initiated since the imposition of reciprocal prices, said the South China Morning Post (SCMP)
In the Canadian region, investors are looking for new indices on the question of whether the Bank of Canada (BOC) will start to reduce the interest rates of the political meeting in June. The BOC reports for the April meeting showed Wednesday that the central bank left interest rates unchanged at 2.75% in the midst of uncertainty on economic prospects in the face of additional prices announced by US President Donald Trump on April 2. It was the first time that the BOC has maintained the borrowing rates after having reduced them for seven consecutive times.
The BOC minutes have also indicated that political decision-makers still think that the impact of previous rate reductions has not yet been to feed the economy and that, consequently, the relaxation of policies at this stage could have been a “premature” decision.
The minutes also said that the central bank would remain flexible for the adjustments of monetary policy until “the expectations of long-term inflation remain anchored,” reported Reuters.
US dollar FAQ
The US dollar (USD) is the official currency of the United States of America and the “de facto” currency of a large number of other countries where it is in circulation alongside local tickets. It is the most negotiated currency in the world, representing more than 88% of all global turnover, an average of 6.6 billions of dollars of transactions per day, according to data from 2022. After the Second World War, the USD took over from the British book as a global reserve currency. For most of its history, the US dollar was supported by gold, until the Bretton Woods agreement in 1971 when the Order stallion left.
The single most important factor on the value of the US dollar is monetary policy, which is shaped by the Federal Reserve (Fed). The Fed has two mandates: to reach price stability (controlling inflation) and promoting full employment. Its main tool to achieve these two objectives is to adjust interest rates. When prices are increasing too quickly and inflation is greater than the 2% target of the Fed, the Fed will increase rates, which helps the USD value. When inflation falls below 2% or the unemployment rate is too high, the Fed can reduce interest rates, which weighs on the greenback.
In extreme situations, the federal reserve can also print more dollars and promulgate a quantitative relaxation (QE). QE is the process by which the Fed considerably increases the credit flow in a blocked financial system. This is a non -standard political measure used when credit has dried up because the banks will not lend themselves (by default of the fear of the counterpart). This is a last appeal when the simple drop in interest rates is unlikely to achieve the necessary result. It was Fed's weapon of choice to combat the credit crisis that occurred during the great financial crisis in 2008. It implies the Fed Print more dollars and use them to buy US state bonds mainly from financial institutions. QE usually leads to a lower US dollar.
The quantitative tightening (QT) is the opposite process by which the federal reserve ceases to buy obligations from financial institutions and does not reinvest the principal of the obligations it holds in new purchases. It is generally positive for the US dollar.
