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Canadian Dollar Strengthens to 1.2571 as Crude Prices Soar

With the crisis in Ukraine escalating, crude prices shot up again, trading at $114 per barrel. The Canadian Dollar strengthened to 1.2571 on March 22.

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Canadian Dollar at Two-Month Highs at 1.2571

The Canadian Dollar strengthens to two months high against the US Dollar. The US Dollar to CAD trades at 1.2584 on Tuesday, March 22, 2022, on the forex markets.

The Canadian to US Dollar conversion strengthens to 0.7941 on March 22, an increase of 2.28%, from the lows reached on March 8. The Canadian Dollar has strong support at 1.2586 and trends at these levels during trading hours on Tuesday, March 22, 2022.

Canadian Dollar at Two-Month High
Canadian Dollar at Two-Month High

Canadian Dollar Strengthens with Increase in Crude Prices

The loonie slipped below the March 3 lows, placed at 1.2586 levels during trading hours on Tuesday, March 22. If the slippage continues, the USD/CAD may move towards the January lows at 1.2500.

The US Dollar to CAD shot to 1.2902 levels on March 8, 2022. It has come down by 2.43% in a fortnight. The Canadian Dollar has strengthened, partly by increasing crude oil prices.

Crude prices surge again as the Russian war against Ukraine intensifies. Canada is a leading exporter of crude oil, and it benefits from every increase in crude oil prices. The US raised sanctions against Russia and stopped its crude oil imports. The European Union intends to join the United States against crude oil imports from Russia. Crude exports from Canada will improve with increasing demand from the US, the UK, and the EU.

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Canadian Pacific Railway Operations Shutdown

Meanwhile, a labor dispute halted the Canadian Pacific Railway operation. It will disrupt the shipment of commodities, fear authorities.

Already, there is a shortage of oil and natural gas from the war between Russia and Ukraine. Canada supplies oil and gas through its railways. The ongoing shutdown could disrupt Canada’s supply of oil to the market.

The Canadian Pacific is the second-largest railroad, and it is crucial for the federal government to take immediate action to end the disruption. The Teamsters Canada Rail Conference (TCRC) blames the CP rail for the shutdown. Talks are continuing by top officials to resolve the issue.

Pipeline capacity is limited, and Canada depends on its railways as an alternate mode of transport. Energy prices are soaring high with the Russian-Ukraine war going on. It is almost a month since the Russian troops invaded Ukraine. Russia is a major supplier of crude oil to other countries, and the war disrupts the oil supply essential for countries like the UK and the EU.

Supply disruptions, especially in fertilizers, coal, and animal feed, will hit the economy if Canadian Pacific Railway operations remain shut, say authorities.

Inflation in Canada

Inflation in Canada climbs higher. The Consumer Price Index was at 5.7% in January, higher than 5.1% in the previous year. High inflation enforces rate hikes, but the Ukraine war holds policymakers from taking strong action. The central bank may hike rates soon, and the Canadian Dollar will react to any changes in the foreign exchange market.

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Economic activities in Canada show signs of improvement. Statistics Canada reports that the economy shows growth at 4.6% in 2021. It showed negative growth at 5.2% in 2020. The Covid-19 pandemic slowed down economic activities. The fourth quarter of 2021 reports an annualized 6.7% growth better than Bank of Canada estimates at 5.8%.

After a period of stagnation in December 2021, growth improved to 0.2% in January.

Unemployment Rate Comes Down

The unemployment rate has come down from 6.5% to 5.5%. The labor force shows remarkable performance as the unemployment rate drops below Covid-19 levels at 5.5%.  The unemployment rate in February 2020, before the pandemic, was at 5.7%. Lower unemployment rates have strengthened the Canadian Dollar.

The accommodation and food sector shows good improvement. Cultural and recreational businesses improved. The tourism industry grew as health authorities lifted restrictions.

The trade balance has improved from 2.6 billion while it was -1.6 billion. Retail sales grew from -2.0% to 3.2%. As businesses reopen after the lockdown, the labor market shows strong growth. Employers prefer reliable employees with talent. In February, employment in the age group of 15 and above rose to 61.8%.

Manufacturing PMI is 56.6%, while previously, it was at 56.2%. Building permits have gone down month on month at -8.8%, while it was at -2.4% last month. Labor productivity quarter-on-quarter is at 0.5%, while it was -1.5% previously. Employment change improves from -200k to 336.6k.

Related:  Positive Canadian employment data can’t hide sluggish labour market

Crude prices are trading at $109 per barrel. The Russian war on Ukraine brought the US Dollar prices up. Russian President Putin stepped up attacks on Ukraine, despite talks from top authorities. Meanwhile, Ukraine President Volodymyr Zelenskyy leader counterattacks the Russian missiles. People from Ukraine need a safe corridor to leave the country to escape from the Russian attacks. Commodity prices are increasing across the globe with the supply chain disruption.

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