USD/CAD: Loonie Gains Slightly on Higher Oil Prices; Greenback Steady

The Canadian dollar strengthened slightly against its U.S. counterpart on Monday as rising energy prices and a steady greenback supported the commodity currency.

Today, the USD/CAD fell to 1.2431 down from Friday’s close of 1.2454. Still, the Canadian dollar gained about 2.3% last month after depreciating around 0.5% in September.

“The door to further CAD (and USD) gains against the likes of the EUR, JPY and GBP is widening and we remain broadly bearish on the outlook for EURCAD and bullish on the CADJPY trajectory. USDCAD gains have been capped in the upper 1.24s since the jobs report; crude oil prices have eased a little and spreads have narrowed slightly against the CAD this week but trends remain broadly supportive for the CAD,” noted Shaun Osborne, Chief FX Strategist at Scotiabank.

“….we think USDCAD should perhaps be trading closer to 1.2200/50. We favour fading USDCAD rallies but picking entry points may get trickier in the next few weeks as seasonal trends tend to favour the USD through November; the high 1.24s/low 1.25s remains an attractive zone for initiating USD shorts but we cannot exclude the risk of USD gains extending towards the low 1.26s. The week ahead is very light on the data front.”

The dollar index, which measures the value of the dollar against six foreign currencies, was trading 0.15% lower at 94.178. The greenback gained on Friday the U.S. employment report showed that jobs were up more than expected during October as COVID-19 infections decreased over the summer. After a summer slump, the labour market rebounded in October adding 531,000 jobs and trimming the unemployment rate to 4.6%.

It is highly likely that the world’s dominant reserve currency, the USD, will rise by end of the year, largely due to the expectation of at least one rate hike next year. With the dollar strengthening and a possibility that the Federal Reserve will raise interest rates earlier than expected, the USD/CAD pair may experience a rise.

Canada is the world’s fourth-largest exporter of oil, which edged higher as positive signs for global economic growth supported the outlook for energy demand.

At the time of writing, U.S. West Texas Intermediate (WTI) crude was trading 0.82% higher at $81.91 a barrel. Higher oil prices lead to higher U.S. dollar earnings for Canadian exporters, resulting in an increased value of the loonie.