USD/CAD makes fresh three-month lows on rising oil prices

USD/CAD is trading at 1.2370 and down some 0.57% after falling from a high of 1.2445 to a low of 1.2354 on Thursday so far. The Canadian dollar has strengthened to its highest level in more than three months against its US counterpart, as the energy crisis underpins the nation's biggest exporting industry, oil. 

Rising energy prices support CAD

The price of oil, one of Canada's major exports, rose after the International Energy Agency said that record natural gas prices would boost demand for oil and top oil producer Saudi Arabia dismissed calls for additional OPEC+ supply. IEA said the OPEC+ group is undersupplying the market by 700,000 barrels per day as it sticks to its schedule of monthly supply increases even as shortages of natural gas, LNG and coal boost oil demand

In its Monthly Oil Market report, the IEA said natural gas and coal shortages in Asia and Europe are raising oil demand by up to half a million barrels per day, while OPEC+ adds just 400,000 barrels per day monthly and US producers refrain from new drilling, pushing oil prices to seven-year highs. West Texas Intermediate crude was last seen up 0.91% to US$81.25 per barrel.

"The surge in prices has swept through the entire global energy chain, fueled by robust economic growth as the world emerges from the pandemic. Record coal and gas prices, as well as rolling black-outs, are prompting the power sector and energy-intensive industries to turn to oil to keep the lights on and operations humming. The higher energy prices are also adding to inflationary pressures that, along with power outages, could lead to lower industrial activity and a slowdown in the economic recovery," the agency noted.

Meanwhile, in what was other welcomed news today, domestic manufacturing data added to evidence that economic activity picked up in the third quarter. Canadian factory sales rose 0.5% in August from July, on higher sales of petroleum and coal, chemicals and primary metals, Statistics Canada said.

US dollar pushed to a 10-day low

As for the US dollar, the DXY index that measures the greenback vs. a number of major rival currencies is down for the second straight day and trading back below 94. US rates are edging lower despite the firm Consumer Price Index print and the FOMC minutes showing imminent tapering. This is priced into the greenback which has suffered at the hands of lower yields and profit-taking as well as rising risk appetite. The DXY was touching a 10-day low on the day while the Aussie, CAD and Kiwi dollars gain in the inflation hedge.