The Canadian to American Dollar rallies to August highs as it trades at the 0.8023 levels, gaining momentum from good job data and soaring crude prices.
Canada to American Dollar Rallies along with Crude Prices
The Canadian to American Dollar is at a 2-month high, trading above 0.80 levels in the foreign currency exchange. The strong rally in the Loonie against the US Dollar correlates with soaring crude oil prices, trading at seven-year highs. The employment reports from Canada show that job opportunities in the country are improving.
Canadian to US Dollar conversion is at 0.8023 during trading hours on October 12, 2021.
The currency exchange rate of the US Dollar to CAD trades just below the SMA 100 placed at 1.2485 and the SMA 200 at 1.2510. The US Dollar to CAD trades negatively for the last seven sessions. The currency pair tried to move higher but continued its decline to two-month lows in the foreign currency exchange.
The USD/CAD exchange rate lost around 2.25% in the last seven trading sessions.
Crude Rally Lifts Canadian Dollar
Crude prices are trading at seven-year highs, with demand increasing across the globe, rising to $82 per barrel. The WTI prices have come down marginally after hitting multi-year highs. The US Dollar to CAD is on a downtrend, trading at the 1.2475 levels. It is trading at levels last seen in August. The USD/CAD lost more than 2.2% last week.
Crude oil prices are at multi-year highs, and analysts are bullish on the crude prices for the third and fourth quarters of 2021. The OPEC + group decided to keep crude oil output unchanged. In July, the group agreed to increase crude production by 400,000 barrels per day until April 2022. With global demand growing after the pandemic, there is a rise in crude oil prices. Petrol and diesel prices are at multi-year highs.
The commodity-linked Canadian Dollar to US Dollar saw a runaway in prices with an increase in crude prices.US West Texas Intermediate (WTI) futures are trading above $80 per barrel. The movement of the USD/CAD in the forex market has a high correlation to oil consumption in the United States. When crude prices increase, the USD/CAD declines. The forex rate of the US Dollar to CAD is currently at two-month lows.
Oil has the highest demand across the global economy, as it is a critical source of energy. Canada is one of the top producers of crude oil. Canada exports almost 3 million barrels of oil to the US, making it the largest supplier to the United States. When demand for crude oil increases in the US, prices spike higher and vice versa.
Meanwhile, Europe and Asia have a shortage of gas which is hurting economic activity.
Bank of Canada to End Quantitative Easing Program
Bank of Canada expects the economy to grow faster than expected. The growing strength in the Canadian to American Dollar in the forex market reflects growth in the economic activity. Bank of Canada predicts that there will be further growth in the economy. The optimism adds to the positive sentiment of the Canadian Dollar.
With the economy showing a sharp rebound, the BOC may increase the interest rate at the meeting to be held at the end of the month. Bond purchases might see tapering say, analysts. The positive note from the central bank is pulling up the Canadian to American Dollar prices. Bank of Canada will end its quantitative easing program soon, say authorities.
With good job data, the Canadian Dollar is strengthening to a two-month high against the greenback. The job sector improved in September, with more than 157,000 jobs added. Employment is back at the pre-pandemic levels.
The unemployment rate has fallen from 7.1% to 6.9%, as per expectation. It has added to the spike in the Canadian to American Dollar prices in the foreign exchange market.
Rising inflation is a cause of concern, and the central bank will hike interest rates to address the inflation issue, which is above the 2% target of the government. Governor Tiff Macklem argues that inflation is temporally driven and will come down soon. There is also a slowing wage growth in the labor market in Canada, says Macklem.
US Dollar Index
The US Dollar Index measures the performance of the US Dollar against major currencies, trades at the year’s high at 94.43. The Dollar Index gains strength as it moves towards resistance at the 94.50 levels.
The US Dollar Index is trading above the 94.00 level. Concerns over the Fed withdrawing economic support to bring down inflation are strengthening the Dollar. The US yields have gone up, which is also supportive of the Dollar. Experts predict that there may be one rate hike by the end of the year, which will drive the greenback higher.
Unemployment data is below 5%, as it reaches pre-pandemic levels of March 2020. It reaffirms that the Fed may taper bond purchases.
The UK, the EU, and China are facing an energy crunch. However, the US does not face an energy crisis.
Good job data and increasing crude oil prices are driving the foreign currency rate of the Canadian to American Dollar higher.