The US Dollar Canadian Dollar exchange rate plunged on Monday evening as the latest oil news surprised investors and left the commodity, as well as the oil-correlated Canadian Dollar, in high demand among traders.
USD CAD opened this week at the level of 1.3466, but on Tuesday morning the pair hit a low of 1.3261 – its lowest level since April.
US Dollar (USD) Outlook Mixed as Investors Anticipate Fed
Demand for the US Dollar has been mixed this week. Investors are highly anticipating the Federal Reserve’s June policy decision on Wednesday, where the Fed is expected to be hiking US interest rates for the second time this year.
Any statements from the Fed this week, especially amid the recent political and economic uncertainty in the US, are vital to the US Dollar outlook.
If the Fed indicates that the US economic and political outlook is still strong enough to support a third interest rate hike before the end of 2017, the US Dollar is likely to strengthen this week.
However, in the chance the Fed indicates its outlook has dampened investors will sell off the US Dollar. There is also the possibility that the Fed will shock investors by opting to leave monetary policy frozen this week.
It’s also possible the US Dollar outlook will be changed by an upcoming testimony to Congress from US Attorney General Jeff Sessions.
Sessions has indicated he wishes the hearing to be public. Any of his statements that may boost confidence in US President Donald Trump would improve the USD outlook, but statements that could harm Trump’s standing with Congress would be USD negative.
Canadian Dollar (CAD) Demand Higher as Oil Prices Increase
The latest developments in oil markets have driven movement in the Canadian Dollar this week, boosting the oil-correlated ‘Loonie’ and helping it to easily gain against the US Dollar.
Crude oil prices rose on Monday evening when it was reported that US oil inventories dropped by 1.8m barrels. Saudi Arabia, the world’s top oil exporter, also boosted oil demand as it announced it would be making major cuts to oil supply.
Saudi Arabia is reportedly aiming to cut oil supply to major importers in Asia and the US. This is on top of an OPEC-led effort to cut oil production by 1.8m barrels per day until the end of Q1 2018, of which Saudi Arabia is also involved.
Oil demand improved following the news, though concerns remain about the long-term outlook of the commodity and if prices will ever see a long-term increase.
As OPEC members and other participating producers cut oil production, other nations ramp up production. The US has also continued to increase shale oil output, keeping pressure on oil prices.
However, ‘Loonie’ demand has also been bolstered by the latest Bank of Canada (BOC) speculation.
BOC senior deputy governor Carolyn Wilkins pointed out on Monday night that Canada’s Q1 2017 had been strong. She even indicated that the bank should begin considering if Canada’s current low interest rates would still be necessary. As a result, BOC rate hike bets increased.
USD CAD Interbank Rate
At the time of writing this article, the US Dollar Canadian Dollar exchange rate trended in the region of 1.3260. The Canadian Dollar US Dollar exchange rate traded at around 0.7540.