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USD/CAD: Loonie Hits Nearly One-Month High on Strong Oil Prices

By:
Vivek Kumar
Published: Oct 4, 2021, 14:45 UTC

The Canadian dollar hit a near one-month high against its U.S. counterpart on Monday as oil prices spiked on speculation that OPEC+ would maintain its current crude production policy.

USD/CAD

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The Canadian dollar hit a near one-month high against its U.S. counterpart on Monday as oil prices spiked on speculation that OPEC+ would maintain its current crude production policy.

CAD has managed to survive a tricky week for pro-cyclical currencies as it benefitted from the rise in energy prices worldwide (Canada is a major exporter of natural gas). This may continue to be the case in the week ahead, as more potential hits to risk sentiment and USD strength will likely challenge CAD’s resilience again,” noted Francesco Pesole at FX Strategist at ING.

“On the domestic side, the focus will be on September jobs data in Canada, which will be released in tandem with the US NFP. We might see a more moderate increase in employment after August’s 90k jump, but we expect the jobs report to by and large endorse the recent upbeat sentiment on the Canadian economic outlook, as well as market expectations on more Bank of Canada tightening before year-end. Ultimately, this suggests any headwind to CAD will only come from external factors as domestic drivers are set to remain supportive.”

The USD/CAD fell to 1.2553, down from Friday’s 1.2647 today. However, the Canadian dollar lost over 1.2% in August and further depreciated over 0.5% last month.

Canada is the world’s fourth-largest exporter of oil, which edge higher as OPEC+ expected to keep its crude oil output stagnant at the current pace. U.S. West Texas Intermediate (WTI) crude futures were trading 2.37% higher at $77.64 a barrel. This was largely supported by a Reuters report stating OPEC+ would maintain its current output level.

Higher oil prices lead to higher U.S. dollar earnings for Canadian exporters, resulting in an increased value of the loonie.

The dollar index, which measures the value of the dollar against six foreign currencies, was trading 0.30% lower at 93.756. The greenback has gained last week as investors have become concerned the Fed may withdraw its economic support due to slow global growth and high inflation. Rising bond yields have contributed to the strengthening of the currency.

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 hikes 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.

About the Author

Vivek has over five years of experience in working for the financial market as a strategist and economist.

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