Home Daily Commentaries CAD struggles amid lower energy and metal prices

CAD struggles amid lower energy and metal prices

Daily Currency Update

The Loonie trades around 1.33450 against the USD. Weakness in the Canadian Dollar was driven by the dull performance of energy and metal prices which are Canada's primary exports, as well as the strength of the greenback. Investors continue to evaluate the monetary policy outlook of both the Bank of Canada (BoC) and the Federal Reserve. Lower-than-anticipated domestic inflation rates have dampened expectations that the BoC will proceed with its forecasted slowing of prices to 3% this summer. Alleviating concerns about persistent inflation, core inflation rates decelerated more than expected, dropping to 3.7%. The BoC’s decision to raise rates by 25 basis points (bps) in June, resuming its tightening cycle following a pause in March, was driven by worries about stubborn inflation.

Key Movers

The US dollar index (DXY) is fluctuating around 103.3 following slight gains earlier in the week. Traders are now considering the possibility of higher interest rates in the future alongside mixed economic data releases. Yesterday, the release of Federal Open Market Committee (FOMC) meeting minutes reinforced expectations of a rate increase this month, with traders currently estimating a nearly 93% probability of a 25 bps hike. Furthermore, the likelihood of another quarter-point increase in September rose to 30% from around 20% previously. Simultaneously, various labor market indicators such as job cuts, the ADP report, and the jobless claims report continue to indicate a robust job market. The upcoming payroll report, scheduled for release tomorrow, will be closely monitored for additional insights. Conversely, production indicators like the ISM manufacturing Purchasing Manager’s Index (PMI) and factory orders fall short of expectations. Data released today revealed that the number of people who applied for unemployment benefits in the US for the week ending on July 1st increased by 12,000, reaching a total of 248,000.

The EUR trades around 1.08713 as investors evaluate the possibility of extended higher interest rates alongside data pointing towards economic slowdown and easing inflationary pressures. The latest PMI report showed the Eurozone economy halting in June, primarily due to a significant decline in manufacturing and a moderation in the growth of services activity. Additionally, headline inflation decreased to 5.5%, reaching its lowest level since January 2022, and producer prices experienced a 1.5% decline in May, marking the first contraction in over two years. However, core indicators remain consistently high. German policymaker Nagel reiterated the necessity of further interest rate hikes, while his Italian counterpart, Ignazio Visco, suggested that the European Central Bank (ECB) could achieve its inflation target by maintaining rates.

The pound maintains its position near the 1.27 mark, staying relatively close to its 14-month high of 1.2848 recorded on June 16. Investors are cautious amid the likelihood of increased borrowing expenses and expressed worries about a potential recession resulting from the Bank of England's (BoE) assertive measures. Governor Andrew Bailey highlighted that the recent rate hikes indicated the strength of the economy and the surprising persistence of inflation. Presently, investors anticipate an increase in rates to reach 6.5% by March, following an unforeseen 50 bps hike in June.

Expected Ranges

  • EUR/CAD: 1.4411 - 1.4495 ▲
  • GBP/CAD: 1.6858 - 1.6985 ▼
  • AUD/CAD: 0.8823 - 0.8885 ▼
  • USD/CAD: 1.3263 - 1.3362 ▲