Canadian Dollar outperforms its peers despite oil prices cool down
- The Canadian Dollar trades higher against its major currency peers even as oil prices correct.
- Oil prices retrace as energy supply concerns ease following multiple events.
- The Fed is expected to hold interest rates steady for longer.
The Canadian Dollar (CAD) outperforms its major currency peers, but trades flat against the US Dollar (USD) at around 1.3740 during the European trading session on Friday. The North American currency rises even as oil prices have slightly corrected, following multiple Iran-related events that eased supply concerns.
US Dollar Price Today
The table below shows the percentage change of US Dollar (USD) against listed major currencies today. US Dollar was the strongest against the Japanese Yen.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | 0.15% | 0.10% | 0.41% | -0.07% | -0.01% | -0.12% | 0.11% | |
| EUR | -0.15% | -0.06% | 0.29% | -0.21% | -0.15% | -0.28% | -0.04% | |
| GBP | -0.10% | 0.06% | 0.36% | -0.17% | -0.10% | -0.22% | 0.02% | |
| JPY | -0.41% | -0.29% | -0.36% | -0.48% | -0.43% | -0.55% | -0.30% | |
| CAD | 0.07% | 0.21% | 0.17% | 0.48% | 0.05% | -0.06% | 0.17% | |
| AUD | 0.00% | 0.15% | 0.10% | 0.43% | -0.05% | -0.12% | 0.08% | |
| NZD | 0.12% | 0.28% | 0.22% | 0.55% | 0.06% | 0.12% | 0.24% | |
| CHF | -0.11% | 0.04% | -0.02% | 0.30% | -0.17% | -0.08% | -0.24% |
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the US Dollar from the left column and move along the horizontal line to the Japanese Yen, the percentage change displayed in the box will represent USD (base)/JPY (quote).
Higher oil prices result in higher foreign inflows in the Canadian economy, given that Canada is the largest exporter of oil to the US, which potentially improves the CAD’s appeal.
WTI oil price retraces from $100 as Israel’s pledge to stop targeting Iranian oil infrastructure and comments from United States (US) Treasury Secretary Scott Bessent regarding the likely removal of sanctions on Iran’s oil stuck in the sea have eased oil supply concerns.
On the monetary policy front, investors expect the Bank of Canada (BoC) to hold interest rates steady for longer as risks to inflation and economic growth have both increased.
Meanwhile, the US Dollar is also trading firmly as the Federal Reserve (Fed) is expected to adopt an extended pause amid upside inflation risks. As of writing, the US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, trades 0.2% higher to near 99.30.
On Thursday, the USD Index fell sharply as global central banks also warned of energy-driven inflation risks, which trimmed hopes of the Fed’s policy divergence with other central banks.
Central banks FAQs
Central Banks have a key mandate which is making sure that there is price stability in a country or region. Economies are constantly facing inflation or deflation when prices for certain goods and services are fluctuating. Constant rising prices for the same goods means inflation, constant lowered prices for the same goods means deflation. It is the task of the central bank to keep the demand in line by tweaking its policy rate. For the biggest central banks like the US Federal Reserve (Fed), the European Central Bank (ECB) or the Bank of England (BoE), the mandate is to keep inflation close to 2%.
A central bank has one important tool at its disposal to get inflation higher or lower, and that is by tweaking its benchmark policy rate, commonly known as interest rate. On pre-communicated moments, the central bank will issue a statement with its policy rate and provide additional reasoning on why it is either remaining or changing (cutting or hiking) it. Local banks will adjust their savings and lending rates accordingly, which in turn will make it either harder or easier for people to earn on their savings or for companies to take out loans and make investments in their businesses. When the central bank hikes interest rates substantially, this is called monetary tightening. When it is cutting its benchmark rate, it is called monetary easing.
A central bank is often politically independent. Members of the central bank policy board are passing through a series of panels and hearings before being appointed to a policy board seat. Each member in that board often has a certain conviction on how the central bank should control inflation and the subsequent monetary policy. Members that want a very loose monetary policy, with low rates and cheap lending, to boost the economy substantially while being content to see inflation slightly above 2%, are called ‘doves’. Members that rather want to see higher rates to reward savings and want to keep a lit on inflation at all time are called ‘hawks’ and will not rest until inflation is at or just below 2%.
Normally, there is a chairman or president who leads each meeting, needs to create a consensus between the hawks or doves and has his or her final say when it would come down to a vote split to avoid a 50-50 tie on whether the current policy should be adjusted. The chairman will deliver speeches which often can be followed live, where the current monetary stance and outlook is being communicated. A central bank will try to push forward its monetary policy without triggering violent swings in rates, equities, or its currency. All members of the central bank will channel their stance toward the markets in advance of a policy meeting event. A few days before a policy meeting takes place until the new policy has been communicated, members are forbidden to talk publicly. This is called the blackout period.
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