Home Daily Commentaries Oil prices continue to undermine the CAD

Oil prices continue to undermine the CAD

Daily Currency Update

The Loonie is tumbling against the USD today as the yield on benchmark government debt continues to slip. The Canadian government’s 10-year bond yields fell by 3.6 basis points (bps) to 2.79%. Another main driver of the commodity-linked Canadian dollar, crude oil continues to weigh heavily on the USD/CAD pair. Oil prices remain under extreme sell off pressure for the third consecutive day and nosedived to the lowest levels since March 27, 2023. This all comes to light amidst fears over uncertain economic headwinds across the globe stemming from constantly mounting borrowing costs, which could dent the fuel demand further. Fears about the US debt ceiling and a full-blown banking crisis after the First Republic Bank failure, are dragging the US Treasury bond yields lower which, in turn, continue to exert pressure on the USD/CAD pair. The expected range for the USD/CAD in the upcoming months may remain between 1.3490 and 1.3685.

Key Movers

The US Dollar Index decreased today to the 101.41 range, shredding its three-day gains earlier this week. The green back is under constant selling pressure in negative territory ahead of the Federal Open Market Committee (FOMC) decision. The Fed stated that it may pause the hiking cycle, which in turn could lead to further decline in the US dollar. The Fed has been on a hiking spree to curb inflation since March 2022 which elevated the rates from a near zero level to the range of 4.75% to 5% within just 1 year. The Fed is expected to hike rates by 25 basis points (bps) which may be the final hike this year. The banking crisis in the United States may make the Fed rethink its hawkish monetary policy stance even though inflation is still higher than Fed's target 2%. Inflation currently stands at 5%.

Eurozone markets have rebounded modestly following Tuesday’s negative levels, trading near 1.100. This is amid market attention pointed to the Fed’s policy rate announcement and tomorrow’s European Central Bank’s (ECB) meeting. Both European and US central banks are in the same boat dealing with a sluggish economy, soaring inflation, unimpressive unemployment rates, and an unsteady banking sector.

The sterling followed the same path as its European peer and was seen recovering against the USD at the 1.2500 levels. The tone of the market was similar too, focusing on the Fed decision. Support aiding the GBP came from aa Nationwide (UK’s biggest mortgage lender) data release where it shared a 0.5% month-over-month rise in UK housing prices in April when a negative figure had been expected.

Expected Ranges

  • EUR/CAD: 1.4982 - 1.5066 ▼
  • GBP/CAD: 1.6982 - 1.7092 ▼
  • AUD/CAD: 0.9067 - 0.995 ▲
  • USD/CAD: 1.3599 - 1.3638 ▼