Oil's bounce and Iran jitters box in USD/CAD just under 1.4050 A recovery in crude oil prices is propping up the Canadian Dollar, while lingering uncertainty over Iran keeps the safe-haven US Dollar bid. Caught between these opposing forces, USD/CAD hovered just below 1.4050 on Tuesday, barely changed on the day. The USD/CAD pair spent Tuesday's Asian session drifting inside a tight range, trading just below the 1.4050 mark and ending up nearly unchanged on the day. The reason is a genuine tug-of-war between two opposing forces. On one side, a recovery in crude oil prices is lending strength to the Canadian Dollar, and on the other, geopolitical uncertainty is keeping the US Dollar supported. Caught in the middle, the pair has been unable to build on the modest recovery gains it posted the previous day. Uncertainty over talks between the United States and Iran has given crude oil prices some positive traction. Because the Canadian Dollar is a commodity-linked currency, that firmness in oil puts a floor under the Loonie and acts as a headwind for USD/CAD. At the same time, fading optimism over a possible US-Iran peace deal plays into the hands of the safe-haven US Dollar, which is exactly what is keeping the pair from slipping further. Iran's stance clouds the picture In the latest developments, Iran said on Monday that no talks were currently underway with the United States and that there were no plans for any meetings either. That statement runs directly against Donald Trump, who had pointed to a resumption of negotiations as his justification for calling off attacks over the weekend. In other words, the very basis on which those strikes were held back is now in question. Adding to the tension, unconfirmed reports of drone strikes on US assets in Kuwait have pushed traders to price in a geopolitical risk premium once again. That has helped the Greenback hold on to the solid recovery it staged from its June 17 low, and it is keeping USD/CAD bears from placing fresh downside bets. What really drives the Canadian Dollar It helps to understand what moves the Canadian Dollar in the first place. The single biggest factor is the level of interest rates set by the Bank of Canada. Alongside that sit the price of Oil, which is Canada's largest export, the overall health of the economy, inflation, and the Trade Balance, which is simply the gap between the value of what Canada exports and what it imports. Market sentiment matters too. When investors reach for riskier assets, a mood known as risk-on, it tends to be good for the Canadian Dollar. When they instead seek out safe havens, a risk-off environment, the Loonie usually comes under pressure. And because the United States is Canada's largest trading partner, the health of the US economy is another key influence on the currency. The Bank of Canada's role The Bank of Canada exerts a heavy influence on the Canadian Dollar by setting the rate at which banks lend to one another, which in turn shapes borrowing costs for everyone else. Its main goal is to keep inflation within a 1 to 3 percent band, and it moves interest rates up or down to get there. As a rule, relatively higher interest rates tend to be positive for the Canadian Dollar. The central bank can also lean on quantitative easing and quantitative tightening to steer credit conditions. Of the two, easing is negative for the Canadian Dollar, while tightening is positive. How oil and inflation feed in The price of Oil is arguably the most important lever on the Canadian Dollar. Since petroleum is Canada's biggest export, changes in the price tend to hit the currency almost immediately. Broadly speaking, when Oil rises the Canadian Dollar rises with it, because overall demand for the currency picks up. When Oil falls, the opposite plays out. Higher Oil prices also raise the odds of a positive Trade Balance, which is another source of support for the Loonie. Inflation used to be seen as a straightforward negative for any currency, on the logic that it erodes the value of money. In the modern era, with cross-border capital controls relaxed, the reverse has often been true. Higher inflation tends to prompt central banks to raise interest rates, which draws in global investors chasing a better return. That extra demand lifts the local currency, which in Canada's case is the Canadian Dollar. Why the economic data counts Macroeconomic releases that gauge the health of the economy can also swing the Canadian Dollar. Indicators such as GDP, Manufacturing and Services PMIs, employment figures and consumer sentiment surveys all feed into its direction. A strong economy is good news for the currency: it not only attracts more foreign investment but may also encourage the Bank of Canada to lift interest rates, resulting in a firmer Loonie. Weak data, by contrast, tends to leave the Canadian Dollar vulnerable to a slide. For now, firmer oil and geopolitical uncertainty are largely cancelling each other out, so USD/CAD is likely to stay range-bound until the market gets a clearer signal on which force wins out. What this means for you • For currency traders: With firmer oil and Iran tensions offsetting each other, USD/CAD may keep chopping around 1.4050 rather than picking a clear direction. • For those tied to oil and trade: Every move in crude prices feeds straight into the Canadian Dollar, so watching oil is key to reading the Loonie. Questions & Answers 1. Where was USD/CAD trading on Tuesday? The pair was trading just below the 1.4050 level and stayed nearly unchanged on the day. 2. Why are crude oil prices supporting the Canadian Dollar? Oil is Canada's largest export, so firmer oil props up the Loonie and acts as a headwind for USD/CAD. 3. What did Iran say on Monday? Iran said there were no talks currently underway with the United States and no plans for any meetings. 4. How does that contradict Donald Trump? Trump had cited a resumption of negotiations as his justification for calling off attacks over the weekend. 5. What are the reports coming out of Kuwait? There are unconfirmed reports of drone strikes on US assets in Kuwait, which revived the geopolitical risk premium. 6. What is the Bank of Canada's inflation target? The Bank of Canada aims to keep inflation within a 1 to 3 percent band. 7. Which main factors influence the Canadian Dollar? Bank of Canada interest rates, the price of Oil, the health of the economy, inflation, the Trade Balance, market sentiment and the US economy. https://trendkia.com/en/market/tela-ki-vapasi-aura-iran-tanava-ke-bicha-usd-cad-1-4050-ke-niche-simita-dayare-men-phnsa-13416 TrendKia — Har trend, sabse pehle.