Surge in oil prices keeps Loonie afloat
Wednesday 22 March, 2023
Daily Currency UpdateThe Canadian dollar is trading near six-week highs as a result of rising oil prices and renewed optimism around global trade relations. The Loonie has been benefiting from the rebound in crude oil prices, which have surged to over 10% this month amid supply cuts and hopes for a global recovery. The recent announcement of a preliminary trade deal between the US and China has further eased the concerns over the global economic outlook and boosted investor sentiments towards the commodity-linked Loonie. Canadian economic data is giving mixed signals, however, with some indicators suggesting growth and others hinting at weakness. The softer-than-expected Canadian consumer inflation data released on Tuesday backed the case for the Bank of Canada to hold back from raising interest rates any further.
Key MoversThe US dollar is hovering near five-week lows today ahead of the Federal Reserve's policy meeting. The greenback has shown weakness against the major pairs including EUR & GBP. This is largely due to the ongoing uncertainty around US-China trade relations, the Fed’s highly anticipated monetary policy decision, the banking crisis that has rattled global banks this month, and the underwhelming US economic data releases recently.
The Fed is expected to hike the policy rate by 25 basis points (bps), though there's a slim chance that the US central bank may decide to implement a 50 bps hike, given the tenaciously high inflation and hawkish comments from Fed Chair, Jerome Powell, last month. The USD Index (DXY) trades rangebound ahead of the Federal Open Market Committee’s monetary policy decision, keeping business near the 103.00 level.
The sterling was one of the strongest performing major currencies, trading at 1.2271 against USD and marching towards the 1.2300 mark on the back of hot UK inflation numbers. Inflation in the UK soared to 10.4% on a yearly basis in February. This reading beat the market expectation of 9.9% by a sizeable margin. Following this inflation data, the probability of a 25 bps rate hike by the Bank of England on Thursday has increased exponentially.
EUR/USD consolidated its recent gains at around the 1.0800 level during the European trading session. The pair made the most of a subdued USD on expectations for a less hawkish Fed outlook.
West Texas Intermediate barrel prices rose significantly on Tuesday, last seen trading at the 69.93 level. This move was due to increasing open interest which bodes well for a continued recovery in the near future.
- EUR/CAD: 1.4716 - 1.4802 ▼
- GBP/CAD: 1.6698 - 1.6844 ▼
- AUD/CAD: 0.9109 - 0.9182 ▲
- USD/CAD: 1.3648 - 1.3735 ▼