Bullish oil prices drive USD/CAD pair higher
Wednesday 24 May, 2023
Daily Currency UpdateThe USD/CAD pair jumped to a 1-week high after oil prices soared and inventories dipped. There were a combination of factors supporting the USD push to a fresh 2-month high, which, acted as a tailwind for the USD/CAD pair. The recent hawkish comments by a few prominent Federal Reserve officials reinstated the market expectations that the US central bank may keep the benchmark interest rates on the higher side for slightly a longer period. Markets have started to price in the probability of another 25 basis point lift in June. The Loonie slacked against the greenback as the yield on benchmark government debt slipped. The Canadian dollar was trading at 1.3543 against the USD in the early European session but picked up to highs of 1.3597. Oil prices saw a rally after Saudi Prince Abdulaziz bin Salman’s comments warning the short sellers to “watch out.” Data from the US showed a rather dramatic sink in oil inventories, which indicates a rise in demand. West Texas Intermediate (WTI) oil was last seen trading around 74 and Brent crude oil was trading in the 77 range.
Key MoversThe US dollar rallied to its fresh two-month high at 103.75 in the early European trading session before losing momentum and falling to 103.20 levels. This upward movement was paused after the debt ceiling talks came under uncertainty and no decision could be reached. Both sides, President Joe Biden and Republican Kevin McCarthy departed on Tuesday night with no deal. No new date has been finalized for further talks and no comments clarifying the stance from both parties were released. Markets keep a keen eye on this as the June 1st deadline is approaching in just a few days.
The EUR/USD pair is following the US debt ceiling talks and the pair may strengthen as discussions advance further. EUR/USD was last seen trading at 1.0782, up 0.12% on the day. In Eurozone data, the German IFO Business Climate Index fell to 91.7 in May versus the expected 93. After this release, the institute’s Economist Klaus Wohlrabe commented that the German economy could be heading towards stagnation in the second quarter. He also noted that industry export expectations have fallen, and rate hikes have seemed to dampen demand. Markets are closely watching the European Central Bank’s stance on further rate hikes.
The sterling fell to a one-month low against the USD, down 0.23% at the 1.2364 level following data releases that showed inflation in the UK slowed by much less than the market was expecting. However, the Consumer Price Index (CPI) data still came in higher for April. High inflation rates have led the Bank of England (BoE) to increase interest rates, which have supported the pound over the past few months. With slowing inflation, this trend may begin to reverse. Markets are still speculating that the BoE may still implement two extra rate hikes in the next few months.
- EUR/CAD: 1.4527 - 1.4637 ▼
- GBP/CAD: 1.6750 - 1.6840 ▲
- AUD/CAD: 0.8881 - 0.8940 ▼
- USD/CAD: 1.3487 - 1.3594 ▲