Home Daily Commentaries Loonie takes a dive after oil prices drop

Loonie takes a dive after oil prices drop

Daily Currency Update

The Canadian dollar took a sharp drop against the USD after crude oil prices significantly declined. Oil prices fell after weaker-than-expected Chinese growth data for the second quarter of 2023 and the reopening of Libya’s largest oil field. Currently, West Texas Intermediate (WTI) oil is selling at 74.90 a barrel. Canadian wholesale sales were reported at 83.6 billion in May, up 3.5% and outperforming the anticipated 1.1% increase. A higher-than-expected wholesale sales report could indicate increased consumer sales in Q2. Canada’s foreign securities purchases were also released, coming in at 11.16 billion in May, below the expected 12.7 billion. This was led by strong foreign purchases of federal government debt securities, demand for domestic securities is directly linked to currency demand.

Key Movers

The US dollar index (DXY) edged up slightly to 99.989 today after its biggest weekly drop since November 2022. Last week’s US inflation data fueled the market’s belief that the Federal Reserve was close to the end of its rate hike cycle. The Fed is expected to hike rates by an additional 25 basis points (bps) next week during its policy meeting. The Empire State Manufacturing Index was released at 1.1, better than the forecasted 3.5. This report indicates that business activity held steady in New York state. New orders increased and shipments expanded while employment levels also edged higher.

In the Eurozone, Bundesbank predicted Germany’s economy may shrink this year by more than the expected 0.3% decline. Analysts anticipate that German inflation may fall further in the coming months.

The GBP has dropped back to near 1.3070 ahead of the release of UK inflation data on Wednesday. Annualized inflation in the UK is expected to drop to 8.2% and core inflation, which excludes volatile oil and food prices, is expected to remain steady at 7.1%.

The Chinese economy grew 6.3% in the second quarter of the year, lower than the expected 7.1% growth. However, the initial strength of China’s GDP growth is distorted due to a low base effect last year when China’s economy was in lockdown and moving very slowly.

Expected Ranges

  • EUR/CAD: 1.47770 - 1.48727 ▼
  • GBP/CAD: 1.72264 - 1.73306 ▼
  • AUD/CAD: 0.89620 - 0.90462 ▼
  • USD/CAD: 1.31683 - 1.32323 ▼