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Canadian Dollar Outlook Positive as Crude Oil Prices Head Higher

Canadian Dollar Outlook Positive as Crude Oil Prices Head Higher

Martin Essex, MSTA, Analyst

CAD price, oil news and analysis:

  • The Canadian Dollar has so far failed to benefit from rising oil prices on the demand by the US that other countries halt their buying of Iranian crude.
  • However, the news is likely to boost CAD near-term, sending USDCAD lower.

Canadian Dollar to Benefit from Rising Crude Oil Prices

Surprisingly, perhaps, the Canadian Dollar has so far shrugged off the US demand that all other nations stop buying Iranian crude oil or face sanctions. Canada is a major oil exporter so the CAD tends to rise when oil prices climb and fall when they dip.

By contrast, USDCAD is firmer in Europe Tuesday as the Canadian currency weakens marginally; a move likely to reverse near-term if crude prices continue to advance after reaching their highest levels since late October last year.

USDCAD Price Chart, Five-Minute Timeframe (April 22-23, 2019)

Latest USDCAD price chart.

Chart by IG (You can click on it for a larger image)

The US decided Monday to end exemptions allowing some countries, including China and India, to buy Iranian oil without facing US sanctions. It set a deadline of May 1 and said it was working with Saudi Arabia and the United Arab Emirates to ensure supplies. Nonetheless, the unexpected move lifted crude prices while failing to strengthen the Canadian Dollar.

While a near-term correction downwards in oil cannot be ruled out, it’s now likely that the Canadian Dollar will play catch up, and that USDCAD will drift lower.

Looking further ahead, the Bank of Canada is widely expected to keep its benchmark interest rate unchanged at 1.75% Wednesday and will likely keep it unchanged for the rest of the year. As ever, traders should listen carefully to any comments by BoC Governor Stephen Poloz suggesting that a rate hike next year is on the cards.

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--- Written by Martin Essex, Analyst and Editor

Feel free to contact me via the comments section below, via email at martin.essex@ig.com or on Twitter @MartinSEssex

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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