USD/CAD rebounds to near 1.3600 as Oil prices correct downwards, G7 Summit eyed
- USD/CAD edges higher as the commodity-linked CAD struggles due to lower Oil prices.
- WTI price may regain its ground amid rising concerns over supply disruptions, driven by heightened geopolitical Middle-East tensions.
- Treasury Secretary Scott Bessent, along with the President Trump, will meet with Canadian Prime Minister Mark Carney during G7 summit.
USD/CAD is trading around 1.3600 during the Asian hours on Monday after rebounding from eight-month low of 1.3566, which was recorded on June 13. The pair gains ground as the commodity-linked Canadian Dollar (CAD) faces challenges due to a decline in the crude Oil prices. This is important to note that Canada is the largest crude supplier to the United States (US), the largest Oil consumer.
West Texas Intermediate (WTI) Oil price is trading around $71.90 per barrel after pulling back from five-month high of $74.74, which was recorded on June 13. However, the downside of the Oil prices seems limited due to heightened fears of supply disruptions amid rising geopolitical tensions in the Middle East.
Israel and Iran continue attacking each other despite international calls for diplomacy and de-escalation, per CNN. Iran fired multiple waves of ballistic missiles toward Israel. The Iranian Revolutionary Guard said their missiles successfully targeted Israeli military-industrial centers and fuel facilities.
Iran informed mediators Qatar and Oman that it will not enter negotiations while under attack. A source denied reports that Tehran had approached Oman and Qatar with a request to engage the United States (US) to broker a ceasefire with Israel.
The USD/CAD pair also receives support from increased safe-haven demand amid rising tensions between Israel and Iran. Moreover, the University of Michigan (UoM) reported on Friday that the Consumer Sentiment Index climbed to 60.5 in June, surpassing market expectations of 53.5. The prior reading was 52.2 prior. Traders expect the US Federal Reserve (Fed) to keep its policy rate unchanged within the 4.25%–4.50% range in its upcoming decision on Wednesday.
However, the Canadian Dollar (CAD) received supported from optimism surrounding the potential Canada-US trade deal ahead of the upcoming G7 summit scheduled for June 16-17. US Treasury Secretary Scott Bessent will attend the summit in Canada alongside US President Donald Trump and meet with Canadian Prime Minister Mark Carney.
Canadian Dollar FAQs
The key factors driving the Canadian Dollar (CAD) are the level of interest rates set by the Bank of Canada (BoC), the price of Oil, Canada’s largest export, the health of its economy, inflation and the Trade Balance, which is the difference between the value of Canada’s exports versus its imports. Other factors include market sentiment – whether investors are taking on more risky assets (risk-on) or seeking safe-havens (risk-off) – with risk-on being CAD-positive. As its largest trading partner, the health of the US economy is also a key factor influencing the Canadian Dollar.
The Bank of Canada (BoC) has a significant influence on the Canadian Dollar by setting the level of interest rates that banks can lend to one another. This influences the level of interest rates for everyone. The main goal of the BoC is to maintain inflation at 1-3% by adjusting interest rates up or down. Relatively higher interest rates tend to be positive for the CAD. The Bank of Canada can also use quantitative easing and tightening to influence credit conditions, with the former CAD-negative and the latter CAD-positive.
The price of Oil is a key factor impacting the value of the Canadian Dollar. Petroleum is Canada’s biggest export, so Oil price tends to have an immediate impact on the CAD value. Generally, if Oil price rises CAD also goes up, as aggregate demand for the currency increases. The opposite is the case if the price of Oil falls. Higher Oil prices also tend to result in a greater likelihood of a positive Trade Balance, which is also supportive of the CAD.
While inflation had always traditionally been thought of as a negative factor for a currency since it lowers the value of money, the opposite has actually been the case in modern times with the relaxation of cross-border capital controls. Higher inflation tends to lead central banks to put up interest rates which attracts more capital inflows from global investors seeking a lucrative place to keep their money. This increases demand for the local currency, which in Canada’s case is the Canadian Dollar.
Macroeconomic data releases gauge the health of the economy and can have an impact on the Canadian Dollar. Indicators such as GDP, Manufacturing and Services PMIs, employment, and consumer sentiment surveys can all influence the direction of the CAD. A strong economy is good for the Canadian Dollar. Not only does it attract more foreign investment but it may encourage the Bank of Canada to put up interest rates, leading to a stronger currency. If economic data is weak, however, the CAD is likely to fall.
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