Canada is the world’s fourth-largest exporter of oil, which edged down amid growing fears that the new delta variant could derail the global economic recovery. US West Texas Intermediate (WTI) crude futures were trading down 2.14% to $ 69.06 a barrel.
High oil prices result in higher US dollar gains for Canadian exporters, which in turn increases the value of the loonie.
“USDDCAD’s downward movement at the end of July has stalled and may reverse. The drop in the USD found support in the low area of 1.24, a close retracement and 40 day support from MA. At the very least, the decline from the mid-July high around 1.28 has stopped and needs to consolidate. The upward movement from Friday’s low is impulsive and developing strong bullish momentum, if only for the short term for now, ”noted Shaun Osborne, chief currency strategist at Scotiabank.
“The USD’s breakout of the 1.2525 / 30 area, which was the base of the late July side range for the USD, implies the possibility of further gains towards 1.2605 which was the top of that range. Trend force signals are either bullish or bullish from a USD perspective, suggesting that the USD rise may well develop further over the next few days / weeks. Key support for the USD is now at 1.2425. We are constructive on the USD and seek to mitigate minor declines. “
The most important data point will come on Friday, when the Canadian government reports July employment data figures for July.
The dollar index, a measure of the dollar’s value against six foreign currencies, was trading 0.17% higher at 92.239 at the time of writing. Still, not far from this month’s low of 91.782.
The dollar stalled its rally after the Fed pointed out that the interest rate hike was a long way off in its monetary policy decision last week. The US central bank has also not hinted at reducing its purchases of government bonds.
However, the risk that the world’s main reserve currency, the USD, will recover in the coming year is high, largely due to the Fed’s expectation of two rate hikes in 2023.
The strengthening dollar and the growing risk that the Federal Reserve will tighten monetary policy sooner than expected would push the USD / CAD pair higher.