USD/CAD rises to near 1.3500 due to lower crude Oil prices

USD/CAD appreciates as commodity-linked CAD faces challenges due to lower Oil prices.
WTI price falls as Eight OPEC+ members are set to raise production by 180,000 barrels per day in October.
The US Dollar advanced following July's US Personal Consumption Expenditures Index data.

Akhtar Faruqui FXStreet

USD/CAD retraces its recent losses, trading around 1.3500 during the Asian session on Monday. This upside is attributed to the tepid commodity-linked Canadian Dollar (CAD) following the lower crude Oil prices. Given the fact that Canada is the largest Oil exporter to the United States (US).

West Texas Intermediate (WTI) Oil price falls for the second successive session, trading around $72.50 per barrel at the time of writing. This decline may be linked to the Organization of the Petroleum Exporting Countries and their allies (OPEC+) plans to increase production in the coming quarter.

Reuters reported, citing six sources, that OPEC+ is poised to move forward with a planned increase in Oil output starting in October. Eight OPEC+ members are set to raise production by 180,000 barrels per day (bpd) next month as part of a strategy to begin unwinding their most recent reduction of 2.2 million bpd, while maintaining other cuts until the end of 2025.

US Dollar (USD) received support as July's US Personal Consumption Expenditures (PCE) Index data led traders to scale back expectations of an aggressive Federal Reserve rate cut in September. According to the CME FedWatch Tool, markets are fully anticipating at least a 25 basis point (bps) rate cut by the Fed at its September meeting.

Traders are now likely to focus on the upcoming US employment figures, including the Nonfarm Payrolls (NFP) for August, to gain further insights into the potential size and pace of Fed rate cuts. On the Loonie front, S&P Global Manufacturing PMI will be eyed on Tuesday.

Canadian Dollar FAQs

What key factors drive the Canadian Dollar?

The key factors driving the Canadian Dollar (CAD) are the level of interest rates set by the Bank of Canada (BoC), the price of Oil, Canada’s largest export, the health of its economy, inflation and the Trade Balance, which is the difference between the value of Canada’s exports versus its imports. Other factors include market sentiment – whether investors are taking on more risky assets (risk-on) or seeking safe-havens (risk-off) – with risk-on being CAD-positive. As its largest trading partner, the health of the US economy is also a key factor influencing the Canadian Dollar.

How do the decisions of the Bank of Canada impact the Canadian Dollar?

The Bank of Canada (BoC) has a significant influence on the Canadian Dollar by setting the level of interest rates that banks can lend to one another. This influences the level of interest rates for everyone. The main goal of the BoC is to maintain inflation at 1-3% by adjusting interest rates up or down. Relatively higher interest rates tend to be positive for the CAD. The Bank of Canada can also use quantitative easing and tightening to influence credit conditions, with the former CAD-negative and the latter CAD-positive.

How does the price of Oil impact the Canadian Dollar?

The price of Oil is a key factor impacting the value of the Canadian Dollar. Petroleum is Canada’s biggest export, so Oil price tends to have an immediate impact on the CAD value. Generally, if Oil price rises CAD also goes up, as aggregate demand for the currency increases. The opposite is the case if the price of Oil falls. Higher Oil prices also tend to result in a greater likelihood of a positive Trade Balance, which is also supportive of the CAD.

How does inflation data impact the value of the Canadian Dollar?

While inflation had always traditionally been thought of as a negative factor for a currency since it lowers the value of money, the opposite has actually been the case in modern times with the relaxation of cross-border capital controls. Higher inflation tends to lead central banks to put up interest rates which attracts more capital inflows from global investors seeking a lucrative place to keep their money. This increases demand for the local currency, which in Canada’s case is the Canadian Dollar.

How does economic data influence the value of the Canadian Dollar?

Macroeconomic data releases gauge the health of the economy and can have an impact on the Canadian Dollar. Indicators such as GDP, Manufacturing and Services PMIs, employment, and consumer sentiment surveys can all influence the direction of the CAD. A strong economy is good for the Canadian Dollar. Not only does it attract more foreign investment but it may encourage the Bank of Canada to put up interest rates, leading to a stronger currency. If economic data is weak, however, the CAD is likely to fall.

Author

Akhtar Faruqui

FXStreet

Akhtar Faruqui is a Forex Analyst based in New Delhi, India. With a keen eye for market trends and a passion for dissecting complex financial dynamics, he is dedicated to delivering accurate and insightful Forex news and analysis.

AUD/USD flirts with 0.7000, lowest since early August amid bullish USD

AUD/USD hits a fresh low since early August during the Asian session on Friday and looks vulnerable near 0.7000 after breaking below the 200-day SMA overnight. Against the backdrop of the hawkish Fed, a two-day rally in oil prices revives inflation fears and continues to push US bond yields to multi-year highs. Adding to this, geopolitical risks lift the US Dollar to a two-month high, overshadowing RBA rate hike bets and weighing on the pair.

USD/JPY pulls back from three-week high after failing near 159.00

USD/JPY edges lower during the Asian session on Friday, stalling its recent strong move to a three-week high of 159.00 as Japanese Yen bears turn cautious amid intervention fears. Meanwhile, the US Dollar retains a strong bullish undertone as the Fed's hawkish outlook and oil-driven inflation fears continue to push US bond yields to multi-year peaks. Furthermore, the BoJ's dovish rate hike last week might cap JPY and support spot prices.

Gold extends the range play below $4,300 as Fed hike bets counter modest USD pullback

Gold struggles to gain any traction and remains confined in a narrow range near the weekly low through the early European session on Friday amid a bearish fundamental backdrop. The US Dollar pulls back slightly following a strong rally to a nearly two-month high and offers some support to the commodity. However, the US Federal Reserve's hawkish outlook, elevated US bond yields, and persistent geopolitical uncertainties favor USD bulls.

Ripple, Cardano, Solana: ETF inflows and whale demand signal further rally

Ripple (XRP), Cardano (ADA), and Solana (SOL) continue to experience a steady recovery with double-digit gains so far this month. Ripple and Solana experience firm institutional demand, while the percentage of ADA supply in profit rises, underpinned by interest from large-wallet investors, commonly referred to as whales.

The Dollar is winning, but markets may be losing

The dollar is strengthening, Treasury yields are approaching levels not seen in almost two decades, and oil prices are again adding to inflation concerns. For currency traders, these developments appear to offer a relatively straightforward conclusion: higher US interest rates should support the dollar. But the broader market picture is considerably more complicated.

BoJ Recap: Not as hawkish as expected

The Bank of Japan (BoJ) raised its short-term interest-rate target to 1.25% from 1.00% in a 7-2 vote, marking another step in the normalisation of monetary policy and widely matching what everyone has been expecting for weeks.