USD/CAD remains supported above 1.3700 ahead of Canada’s CPI release
- Canadian Dollar appreciated on USD weakness, but upside attempts remain limited.
- Oil prices' sell-off triggered by the Middle East ceasefire is weighing on the CAD.
- Investors are also wary of a sharp increase ¡on inflation that will complicate the BoC's monetary policy. in
The US Dollar retreated against its Canadian Counterpart on Monday as Trump’s announcement of a ceasefire in the Middle East boosted risk appetite. The pair’s reversal, however, has been capped above 1.3700 with investors awaiting Canadian inflation figures.
The US Dollar is trading lower across the board, with the US Dollar Index (DXY) more than 1% below Monday’s highs. The agreement between Israel and Iran to cease all hostilities has boosted market sentiment and sent safe-haven assets like the US Dollar tumbling.
The slide on Oil prices is weighing on the CAD
The Canadian Dollar, however, is failing to put a significant distance from Monday’s lows, weighed by a nearly 15% decline in Oil prices in the last two days. Oil is Canada’s main import, and the CAD is strongly correlated to Crude prices.
Investors’ hopes of a long-lasting truce in the Middle East have eased concerns about a disruption to Oil supply that had boosted prices in the last few weeks. The risks of Iran blocking the Strait of Horm¡uz have also declined, altogether prompting a more than $10 sell-off in WTI prices over the last two days. This is acting as a headwind for the CAD.
Beyond that, traders are also wary of placing large CAD longs ahead of the Canadian CPI release, due later today. Consumer inflation is expected to have picked up in June, which might complicate the Bank of Canada’s monetary policy and increase pressure on the loonie.
In the US, all eyes will be on Fed chairman Powell, whose testimony to Congress will be observed with interest, as the dovish comments by Waller and Bowman in recent days have heightened hopes of a rate cut in the coming months.
WTI Oil FAQs
WTI Oil is a type of Crude Oil sold on international markets. The WTI stands for West Texas Intermediate, one of three major types including Brent and Dubai Crude. WTI is also referred to as “light” and “sweet” because of its relatively low gravity and sulfur content respectively. It is considered a high quality Oil that is easily refined. It is sourced in the United States and distributed via the Cushing hub, which is considered “The Pipeline Crossroads of the World”. It is a benchmark for the Oil market and WTI price is frequently quoted in the media.
Like all assets, supply and demand are the key drivers of WTI Oil price. As such, global growth can be a driver of increased demand and vice versa for weak global growth. Political instability, wars, and sanctions can disrupt supply and impact prices. The decisions of OPEC, a group of major Oil-producing countries, is another key driver of price. The value of the US Dollar influences the price of WTI Crude Oil, since Oil is predominantly traded in US Dollars, thus a weaker US Dollar can make Oil more affordable and vice versa.
The weekly Oil inventory reports published by the American Petroleum Institute (API) and the Energy Information Agency (EIA) impact the price of WTI Oil. Changes in inventories reflect fluctuating supply and demand. If the data shows a drop in inventories it can indicate increased demand, pushing up Oil price. Higher inventories can reflect increased supply, pushing down prices. API’s report is published every Tuesday and EIA’s the day after. Their results are usually similar, falling within 1% of each other 75% of the time. The EIA data is considered more reliable, since it is a government agency.
OPEC (Organization of the Petroleum Exporting Countries) is a group of 12 Oil-producing nations who collectively decide production quotas for member countries at twice-yearly meetings. Their decisions often impact WTI Oil prices. When OPEC decides to lower quotas, it can tighten supply, pushing up Oil prices. When OPEC increases production, it has the opposite effect. OPEC+ refers to an expanded group that includes ten extra non-OPEC members, the most notable of which is Russia.
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