USD/CAD trades with bearish bias below 1.3650, investors await US PPI data
-
USD/CAD
weakens
around
1.3630
in
Friday’s
early
Asian
session. -
The
softer
US
June
inflation
readings
increased
Fed
rate
cut
bets. -
The
recovery
of
crude
oil
prices
might
cap
the
pair’s
upside.
The
USD/CAD
pair
trades
with
mild
losses
near
1.3630
after
bouncing
off
the
two-month
lows
around
1.3588
during
the
early
Asian
session
on
Friday.
The
pair
edges
lower
after
the
softer-than-expected
US
inflation
readings
in
June
have
fueled
the
expectation
of
a
Federal
Reserve
(Fed)
rate
cut
in
September,
which
weighs
on
the
Greenback.
US
inflation,
as
measured
by
the
Consumer
Price
Index
(CPI),
declined
0.1%
MoM
in
June,
the
lowest
level
in
more
than
three
years,
the
Labor
Department
reported
Thursday.
The
headline
CPI
increased
3.0%
on
a
yearly
basis
in
June,
compared
to
a
rise
of
3.3%
in
May,
below
the
market
consensus
of
3.1%.
The
core
CPI,
which
excludes
volatile
food
and
energy
prices,
rose
3.3%
YoY
in
June
compared
to
May’s
increase
and
expectation
of
3.4%
In
response
to
the
data,
investors
in
the
fed
funds
futures
market
increased
their
bets
that
the
US
Fed
would
lower
rates
starting
in
September.
According
to
CME
Group’s FedWatch
Tool,
markets
are
now
pricing
in
nearly
89%
odds
of
a
September
Fed
meeting
rate
cut,
up
from
73%
on
Wednesday.
Furthermore,
the
US
weekly
Initial
Jobless
Claims
for
the
week
ending
July
6
increased
by
222,000,
compared
to
the
previous
week’s
239,000,
the
lowest
level
since
June
1.
This
figure
came
in
better
than the
expectations
of 236,000.
On
the
Loonie
front,
Canada’s
Unemployment
Rate
rose
to
6.4%
and
the
economy
lost
1,400
jobs
in
June,
prompting
a
higher
probability
that
the
Bank
of
Canada
(BoC)
would
cut
further
interest
rates.
The
weaker
Canada’s
June
labour
market
data
might
undermine
the
Canadian
Dollar
(CAD)
and
create
a
tailwind
for
USD/CAD.
However,
the
rebound
of
crude
oil
prices
might
help
limit
the
CAD’s
losses,
as
Canada
is
the
major
crude
oil
exporter
to
the United
States.
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.
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