Forex News
BNP Paribas highlights how cheaper imports from China are exerting a deflationary influence on Euro area prices. With 16.9% of Euro area imports sourced from China, they estimate that a 10% fall in Chinese import prices could trim headline inflation by about 0.3 percentage points, consistent with recent European Central Bank (ECB) research, as China pursues a market-share-focused pricing strategy.
Cheaper Chinese goods lower Euro inflation
"Conversely, the downward trend in import prices from China has accelerated in recent months, especially in sectors where Chinese overcapacity is most pronounced, such as chemicals."
"Europe continues to import deflation from China."
"The deflationary impact of cheaper Chinese imports is not neutral for euro area inflation dynamics because the monetary union remains heavily dependent on imports (16.9% of euro area imports came from China in April)."
"According to our calculations, a 10% drop in Chinese import prices would cut headline inflation by around 0.3 percentage points – a finding that aligns closely with a recent ECB research note."
"The recent appreciation of the renminbi against the euro has not yet mitigated this effect: faced with a commercial decoupling from the United States, China appears to be intensifying its market-share-winning price strategy, a stance likely to continue in a context of weak domestic demand."
(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)
DBS Group Research economist Chua Han Teng expects the State Bank of Vietnam to keep its refinancing rate at 4.50% through end-2026. The report highlights a broadly stable Vietnamese Dong against the US Dollar, easing headline inflation, and strong GDP growth. DBS raises its 2026 growth forecast to 8.0% as supportive monetary policy is maintained.
SBV seen holding rates to 2026
"The State Bank of Vietnam (SBV) kept its refinancing rate unchanged at 4.50% in 1H26, and we expect this steady stance to extend until the end of 2026."
"Although the Vietnamese dong has been hovering on the weaker end of its trading band against the US dollar in 2Q26, it has remained broadly stable with a slight appreciation bias, despite bouts of regional FX volatility driven by Middle East tensions and hawkish re-pricing of US Fed interest rate expectations."
"At the same time, headline inflation eased and moved closer to its 2026 target of 4.5% at 4.7% yoy in June 2026 from above 5% yoy in April and May."
"We expect these growth drivers to sustain over the coming months, and therefore raise our 2026 GDP growth forecast to 8.0% from 6.5%."
"TheSBV can afford to keep monetary policy supportive to sustain growth, as upside inflation risks recede, although with vigilance over the currency."
(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)
- Silver remains capped below $64-$65 descending trendline resistance.
- Bulls need a $65 breakout to challenge $70 and the 200-day SMA.
- A break below $59.00 exposes $56.61 and $55.00 supports.
Silver (XAG/USD) price tumbles nearly 3% on Tuesday as market mood turns dismal due to heightened tensions in the Middle East, following Iranian attacks on two vessels in the Strait of Hormuz. At the time of writing, XAG/USD trades at $60.26, after peaking at around $62.16.
XAG/USD Price Forecast: Technical outlook
Silver remains downward-biased as long as it fails to clear a downward resistance trendline in the $64.00-$65.00 range, which could open the door to further upside.
Nevertheless, bulls are not out of the woods, as another key resistance level remains to be cleared, with the $70.00 psychological level up next, ahead of the crucial 200-day Simple Moving Average (SMA) at $70.13. If these key levels are broken, Silver could rally towards the 50- and 100-day SMAs, each at $70.79 and at $74.64.
On the flip side, it’s worth noting that an ‘evening star’ formed, which opens the door for further downside. If XAG/USD dives below the July 2 daily low of $59.00, this opens the door to challenge the June 30 daily low of $56.61 ahead of the $55.00 psychological level.
XAG/USD Price Chart - Daily
Silver FAQs
Silver is a precious metal highly traded among investors. It has been historically used as a store of value and a medium of exchange. Although less popular than Gold, traders may turn to Silver to diversify their investment portfolio, for its intrinsic value or as a potential hedge during high-inflation periods. Investors can buy physical Silver, in coins or in bars, or trade it through vehicles such as Exchange Traded Funds, which track its price on international markets.
Silver prices can move due to a wide range of factors. Geopolitical instability or fears of a deep recession can make Silver price escalate due to its safe-haven status, although to a lesser extent than Gold's. As a yieldless asset, Silver tends to rise with lower interest rates. Its moves also depend on how the US Dollar (USD) behaves as the asset is priced in dollars (XAG/USD). A strong Dollar tends to keep the price of Silver at bay, whereas a weaker Dollar is likely to propel prices up. Other factors such as investment demand, mining supply – Silver is much more abundant than Gold – and recycling rates can also affect prices.
Silver is widely used in industry, particularly in sectors such as electronics or solar energy, as it has one of the highest electric conductivity of all metals – more than Copper and Gold. A surge in demand can increase prices, while a decline tends to lower them. Dynamics in the US, Chinese and Indian economies can also contribute to price swings: for the US and particularly China, their big industrial sectors use Silver in various processes; in India, consumers’ demand for the precious metal for jewellery also plays a key role in setting prices.
Silver prices tend to follow Gold's moves. When Gold prices rise, Silver typically follows suit, as their status as safe-haven assets is similar. The Gold/Silver ratio, which shows the number of ounces of Silver needed to equal the value of one ounce of Gold, may help to determine the relative valuation between both metals. Some investors may consider a high ratio as an indicator that Silver is undervalued, or Gold is overvalued. On the contrary, a low ratio might suggest that Gold is undervalued relative to Silver.
- USD/JPY trades slightly lower below 161.90 as the Yen gains modest support.
- Softer ADP data points to cooling US labor momentum, but the US Dollar holds firm.
- Fed Williams’ inflation warning and the risk of Japanese intervention keep traders cautious near 162.00.
USD/JPY trades slightly negative below the 161.90 area as the Japanese Yen (JPY) finds modest support, while the US Dollar (USD) remains underpinned by cautious remarks from New York Fed President John Williams and lingering inflation concerns.
The latest United States (US) labor data showed that the ADP Employment Change 4-week average eased to 21K from 24.25K, pointing to a softer pace of private hiring. The figure suggests that labor market momentum is cooling, which could normally weigh on the Greenback. However, the USD avoided a deeper pullback as investors continued to price in a Federal Reserve (Fed) focused on supressing inflation.
Williams said the US economy continues to expand at a steady, trend-like pace, while the labor market remains stable. However, he warned that inflation is still elevated, reinforcing the need for the Fed to keep policy restrictive. He also said monetary policy is well positioned to achieve the central bank’s goals, adding that future decisions will depend on incoming data and evolving risks.
On the Japanese side, the Yen remains supported by intervention concerns after USD/JPY recently approached multi-decade highs. Reuters reported last week that Japanese Finance Minister Satsuki Katayama said authorities remain ready to respond to excessive foreign exchange moves and are in close contact with US officials. This keeps traders cautious about chasing USD/JPY higher near the 162.00 region.
Short-term technical analysis:
On the 4-hour chart, USD/JPY trades at 161.89, holding a bullish near-term bias as it remains above both the 20-period and 100-period Simple Moving Averages (SMAs) at 161.65 and 161.50 respectively. The pair is consolidating just under recent highs, with the Relative Strength Index (RSI) easing back below 51, which suggests momentum has normalized from prior overbought extremes.
On the topside, initial resistance appears at the horizontal barrier around 162.02, followed by a nearby cap at 162.18 before a stronger hurdle emerges at 162.43. On the downside, minor support is seen at the latest price floor near 161.89, ahead of the horizontal support at 161.82. The clustered 20-period and 100-period SMAs at 161.65 and 161.50 are expected to reinforce a broader demand zone on deeper pullbacks.
(The technical analysis of this story was written with the help of an AI tool. Know more.)
BNY’s Geoff Yu reports that the People's Bank of China (PBoC) expanded the Renminbi (RMB) Business Facility and Southbound Bond Connect quotas, boosting Hong Kong’s role as the main offshore yuan hub. The central bank will support more yuan-priced commodities, enhance Gold clearing, and allocate more reserves to Hong Kong, while Governor Pan Gongsheng pledges a supportive stance without signaling imminent rate or RRR cuts.
Liquidity boost for offshore RMB market
"The PBoC has announced new measures to deepen Hong Kong’s role as the main offshore yuan hub and to widen mainland-Hong Kong financial links."
"The RMB Business Facility will be expanded to ¥500bn, giving Hong Kong banks greater access to yuan liquidity, while the annual Southbound Bond Connect quota will rise to ¥800bn from ¥500bn."
"The central bank also said it will support more yuan-priced commodity products, advance Hong Kong’s gold clearing system trial and increase the allocation of national foreign reserves to the city."
"Governor Pan Gongsheng said international demand for yuan is broadening beyond trade settlement into investment, financing, pricing and reserves."
"He added that the PBoC will maintain a supportive monetary stance but gave no fresh signals on rate cuts or reserve ratio adjustments."
(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)
- NY Fed survey shows inflation expectations rising to 2023 highs.
- Hormuz ship attacks lift Oil, reviving Fed-tightening concerns.
- FOMC Minutes and jobless claims drive the next Gold catalyst.
Gold (XAU/USD) price retreats by 0.44% on Tuesday as the yellow metal fails to clear $4,200 amid rising US consumer inflation expectations and threats of a resumption of hostilities in the Middle East, following reports of attacks in the Strait of Hormuz. The XAU/USD pair trades at $4,146 after peaking at $4,180.
Bullion retreats as yields climb and Hormuz risks return
The yellow metal seems poised to consolidate after failing to clear a downward-sloping resistance trendline near $4,200, which exacerbated XAU’s drop towards the $4,150 area. Recent data from the NY Fed showed that inflation expectations rose to their highest level since September 2023.
The NY Fed Survey of Consumer Expectations indicated increasing concern among Americans about the high cost of living, with one-year inflation expectations climbing from 3.5% in May to 3.7% in June. Further data showed that the Goods and Services Trade Balance deficit widened from $-54.6 billion in April to $-77.6 billion in May, below estimates of $-78 billion.
The de-anchoring of inflation expectations could be a reason for Fed officials to raise interest rates. Additionally, reports from the Middle East indicated that two ships were attacked by the Iranian Revolutionary Guard Corps (IRGC), as reported by Iran’s Fars agency, which fueled fears that energy prices could reaccelerate ahead of the US-Iran talks resumption.
Oil prices immediately edged higher, underpinning the Greenback due to their positive correlation. At the time of writing, Western Texas Intermediate (WTI), the US crude Oil benchmark, is up over 2.70% to $70.48 per barrel. At the same time, the US Dollar Index (DXY), which measures the buck’s performance against a basket of six currencies, trades at 199.97, up 0.12%.
Another reason to consider is that US Treasury yields are rising. The US 10-year Treasury yield has risen by 5.5 basis points to 4.525%. Despite this, money markets are sceptical of a rate hike at the July 29 meeting, but for September, the odds are near 60%, according to Prime Market Terminal.
The World Gold Council reported that the People’s Bank of China (PBoC) added further Gold reserves for the 20th consecutive month, with stockpiles hitting 75.44 million fine troy ounces at the end of June, up from 74.96 million a month earlier.
Investors' eyes shift towards the release of the latest FOMC meeting minutes on Wednesday, followed by Thursday's jobless claims for the week ending July 4.
XAU/USD technical outlook: Gold remains bearish below $4,200, sellers eye $4,000
Gold’s downtrend is set to extend further if XAU fails to break a resistance line at around $4,200-$4,225. Furthermore, the formation of a 'death-cross' on the daily chart indicates that sellers are gaining traction, which could lead to further declines.
The Relative Strength Index (RSI) remains bearish despite nearing the neutral 50 level. Over the past two trading sessions, it has indicated potential for additional downside.
Bullion’s path of least resistance is downwards. The first support is the $4,150 figure, followed by the psychological $4,100 mark. A breach of the latter will expose the $4,050 milestone, which lies ahead of the $4,000 figure and the year-to-date low at $3,941.
For a bullish turnaround, Gold must clearly break above $4,250 and then aim for $4,300. Resistance levels include the 50-day SMA at $4,391 and the 200-day SMA at $4,488, with $4,500 also in sight.
Gold FAQs
Gold has played a key role in human’s history as it has been widely used as a store of value and medium of exchange. Currently, apart from its shine and usage for jewelry, the precious metal is widely seen as a safe-haven asset, meaning that it is considered a good investment during turbulent times. Gold is also widely seen as a hedge against inflation and against depreciating currencies as it doesn’t rely on any specific issuer or government.
Central banks are the biggest Gold holders. In their aim to support their currencies in turbulent times, central banks tend to diversify their reserves and buy Gold to improve the perceived strength of the economy and the currency. High Gold reserves can be a source of trust for a country’s solvency. Central banks added 1,136 tonnes of Gold worth around $70 billion to their reserves in 2022, according to data from the World Gold Council. This is the highest yearly purchase since records began. Central banks from emerging economies such as China, India and Turkey are quickly increasing their Gold reserves.
Gold has an inverse correlation with the US Dollar and US Treasuries, which are both major reserve and safe-haven assets. When the Dollar depreciates, Gold tends to rise, enabling investors and central banks to diversify their assets in turbulent times. Gold is also inversely correlated with risk assets. A rally in the stock market tends to weaken Gold price, while sell-offs in riskier markets tend to favor the precious metal.
The price can move due to a wide range of factors. Geopolitical instability or fears of a deep recession can quickly make Gold price escalate due to its safe-haven status. As a yield-less asset, Gold tends to rise with lower interest rates, while higher cost of money usually weighs down on the yellow metal. Still, most moves depend on how the US Dollar (USD) behaves as the asset is priced in dollars (XAU/USD). A strong Dollar tends to keep the price of Gold controlled, whereas a weaker Dollar is likely to push Gold prices up.
- USD/CAD extended its rebound off the spring lows even as Canada logged its widest trade surplus in four years.
- The record surplus was built on a Crude Oil price spike that has since reversed, stripping away the Loonie's export support.
- Friday's Canadian employment report is expected to show hiring slowing sharply from May's pace.
Canada delivered the kind of trade headline that should have put a firm bid under the Loonie, and the currency barely noticed. Statistics Canada reported the merchandise trade surplus widened to $4.2 billion in May, a four-year high built on record exports worth $77.1 billion, yet the Canadian Dollar drifted lower on the session as USD/CAD held its ground near the 1.4200 handle.
A surplus with an expiry date
The disconnect makes sense the moment you look at what actually built the surplus. May's export run was the fourth straight monthly gain, but it was a price story rather than a volume story, and the price doing the heavy lifting was Crude Oil, which has since surrendered most of the war premium that inflated those shipment values.
In real, price-adjusted terms, exports were essentially flat on the month, and one bank desk was blunt enough to flag the print as the likely high watermark for the surplus rather than the start of a trend.
Crude Oil unwinds the war premium
The energy tailwind that flattered those export values is not just softening but actively reversing. West Texas Intermediate (WTI), the North American benchmark, has slid back toward the $70 mark, near its lowest levels since February, as vessel traffic through the Strait of Hormuz keeps normalizing and the war premium continues to drain away.
Supply is now the dominant force, with major exporters signing off on another output increase for next month and Saudi Arabia cutting its flagship export grade to Asian buyers by the widest margin since the price wars of the last decade. Sporadic shipping incidents can still hand Crude Oil a day of gains, but the structural pull is lower, and a producer does not discount that aggressively into strong demand.
The one number worth respecting
Underneath the commodity noise sits a data point that actually looks forward. Imports of industrial machinery and equipment jumped 6.1% in May and are running almost 13% higher YoY, and that is the category that tends to lead business investment rather than trail it.
Firms do not order machinery when they expect to shrink, so the signal is that Canadian capital spending is edging higher even with trade policy still murky. It is a real positive, but a modest one, and it does nothing to replace the export income that a receding Crude Oil price is quietly pulling back.
The hawkish case springs a leak
The same Crude Oil slide that is deflating the trade surplus is quietly draining the case for higher Canadian rates. The Bank of Canada (BoC) has held its policy rate at 2.25% for five straight meetings, wedged between a soft domestic economy and the inflation risk that elevated energy prices kept alive, and money markets had even flirted with a small chance of a hike at the July 15 decision.
That case springs a leak once Crude Oil slips below the assumptions the Bank leaned on for its spring forecast, which is exactly where prices now sit. Tuesday's Ivey Purchasing Managers Index (PMI) undershooting expectations only sharpened the sense that domestic momentum is fading, not building.
Friday puts the labour market on the stand
The calendar hands the Loonie its next real test on Friday. Canada's June employment report lands at 12:30 GMT, with consensus looking for hiring to cool to roughly 10K jobs after May's near-88K surge and the unemployment rate expected to hold around 6.6%.
A soft print would harden the message the trade data already whispers, that domestic demand cannot lean on an export boost that Crude Oil is busy taking away. The Federal Open Market Committee (FOMC) minutes on Wednesday give the US Dollar its own catalyst, but for USD/CAD direction this week, the jobs number is the one that counts.
Where the tape breaks
Resistance: The first ceiling sits at the recent swing high near 1.4250, the level that has capped the rebound off the spring low. A daily close above it opens a clean run at the 1.4300 handle, with little in the way until then.
Support: The first floor forms around 1.4150, then at the 1.4000 handle, which lines up with the rising 50-period Exponential Moving Average (EMA). Deeper support rests close to 1.3850 at the 200 EMA, a level USD/CAD reclaimed on the way up and would need to lose to call the trend into question.
Bias: Higher. USD/CAD is trading above both moving averages with momentum still pointed up, and the fundamental props under the Loonie are fading rather than firming. The Stochastic Relative Strength Index (Stoch RSI) rolling over from overbought argues for a pause rather than a reversal, and dips toward 1.4150 look like buying opportunities while that level holds.
USD/CAD daily chart
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.
Commerzbank’s Charlie Lay highlights that USD/SGD has been stable around 1.2920, with SGD NEER estimated at roughly +0.8% above its mid-point. The pair has traded within a 1.29–1.30 range for a month and Lay expects near-term consolidation. The +/-2% NEER band implies a broader USD/SGD range between 1.2780 and 1.3300.
SGD NEER stays moderately elevated
"In FX, USD/SGD was stable yesterday at around 1.2920. It has held within the 1.29-1.30 range for the past month, and we look for consolidation in the near term. On a SGD NEER basis, we estimate it is around +0.8% above the mid-point for USD/SGD at 1.2920, USD/MYR at 4.0850, and USD/CNY at 6.7940. The +/-2% band around the mid-point corresponds to USD/SGD between 1.2780-1.3300, with the mid-point at 1.3040, ceteris paribus."
"May retail sales rose 3% yoy (Bloomberg consensus: 4.7%) vs 5.4% previously. On a 3-month moving average (3mma) basis, growth moderated to 4.3% yoy from a firm 6.2% in April. Excluding autos, it eased to 3.7% from 4.5% previously and on a 3mma basis, growth slowed to 3.7% vs 6.3% previously."
"The data still pointed to a continued expansion, supported by a healthy labour market. Consumer demand is expected to remain resilient and complement the strong external sector, which continues to benefit from AI-related exports."
"The next key release will be the advance Q2 GDP report which is due sometime next week. It is expected to remain firm at around 5.6% yoy vs 6.0% in Q1. The manufacturing sector is expected to be a driver, aided by electronics production. Industrial output expanded by 14.8% yoy in April-May compared to the same period last year vs 8% in Q1."
"This would imply around 5.8% expansion in H1 2026. We could see the government revise up the official forecast of 2-4% for this year when the final Q2 GDP is released around mid-August."
(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)
- USD/CAD eases as higher Oil prices lend support to the Canadian Dollar.
- Diverging Fed and BoC monetary policy expectations limit the Loonie's upside.
- Technically, USD/CAD remains in a bullish trend above key moving averages.
USD/CAD edges lower on Tuesday even as the US Dollar (USD) holds firm, with the Canadian Dollar (CAD) drawing support from a modest rebound in crude Oil prices following renewed attacks on commercial vessels near the Strait of Hormuz. At the time of writing, the pair is trading around 1.4188.
West Texas Intermediate (WTI) crude Oil is trading around $70.30, up nearly 2.50% on the day.
Meanwhile, the US Dollar Index (DXY), which tracks the Greenback's value against a basket of six major currencies, is treading water near 101.00.
However, diverging monetary policy expectations between the Federal Reserve (Fed) and the Bank of Canada (BoC) could limit further gains in the Canadian Dollar (CAD).
Markets continue to expect the Fed to raise interest rates later this year to bring inflation back to its 2% target, even as softer-than-expected US labor market data have reduced expectations of a near-term rate hike.
The BoC is widely expected to leave interest rates unchanged for the remainder of the year, while keeping the door open to rate cuts if inflation continues to ease.
Technically, the broader outlook remains bullish, with USD/CAD consolidating in a two-week range near levels last seen in April 2025.
Technical Analysis:
On the daily chart, USD/CAD holds well above the 100-day and 200-day Simple Moving Averages (SMAs), which reinforces a bullish near-term bias. Price is also holding over prior horizontal support at 1.4000 and the more immediate floor at 1.4150, keeping the pair well-supported despite a mild loss of momentum signaled by the Relative Strength Index (RSI) easing from overbought territory near 68 and a softening Moving Average Convergence Divergence (MACD) line slipping modestly below zero.
On the downside, initial support is seen at 1.4150, with a stronger structural cushion at the 1.4000 horizontal level. Below these, the 200-day SMA at 1.3845 and the 100-day SMA at 1.3822 form a deeper demand zone that would likely underpin any more pronounced pullback while the broader bullish structure remains intact.
(The technical analysis of this story was written with the help of an AI tool. Know more.)
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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