USD/CAD: Canadian dollar continues to strengthen
Receiving support from renewed growth in energy prices, the Canadian dollar continues to strengthen in the foreign exchange market, including against the US dollar.
Thus, futures for Brent oil are growing today for the 8th day in a row, reaching $116.25 per barrel, and Canada, as you know, is the largest exporter of oil and petroleum products, and almost all of Canada's crude oil exports are to the United States (96.3%).
Despite the fact that the Canadian economy cannot be fully characterized as a commodity economy, nevertheless, the export of oil and petroleum products occupies a significant part of Canada's total exports. According to various estimates, Canada ranks third (after Venezuela and Saudi Arabia) in the world in terms of proven oil reserves, the share of which is 9.8%. At the same time, the country is the 4th in the world in terms of oil production. At the same time, the share of mineral fuels and oil products is approximately 22% in the total export of the country. The Canadian dollar is also receiving support on the eve of the Bank of Canada meeting, which will be held on Wednesday, June 1.
Inflation in Canada is rapidly accelerating. Canada's core consumer price index (CPI), which does not take into account volatile food and energy prices, has shown an increase of 6.9% per annum over the past three months against 5.7% in the US. April inflation data, released earlier this month, all but guarantees that the Bank of Canada will raise its key rate by half a percentage point at the end of its meeting on June 1, economists say, and the Bank of Canada, in their opinion, has considerable room to maneuver in raising interest rates. This is a strong fundamental factor that stimulates the growth of quotations of the Canadian dollar, in addition to rising oil prices. Recall that the decision of the Bank of Canada on interest rates will be published on Wednesday at 14:00 (GMT).
Of the news regarding the dynamics of the CAD, this week it is also worth paying attention to the publication on Tuesday at 12:30 (GMT) of Canada's GDP data. A strong report from Statistics Canada will have a positive impact on the CAD quotes, and, conversely, a weak report on GDP will negatively affect the CAD.
Previous reports came out with values of +6.7% in the 4th quarter, +5.5% in the 3rd quarter of 2021. Forecast for the 1st quarter of 2022: +5.4%, which in general should have a positive impact on CAD quotes. Despite the relative decline, the data show the continued recovery of the Canadian economy after its strong fall in early 2020 due to the coronavirus pandemic (in the 1st quarter of 2020, Canada's GDP fell by -8.6%, and in the 2nd -44.2%). Better-than-expected data will also have a positive impact on CAD.
Meanwhile, the US dollar continues to weaken. Thus, at the time of publication of this article, DXY futures are traded near 101.48, 21 points below the closing price last Friday. It seems that market participants are still restrained about long dollar positions, and the upcoming 0.50% increase in interest rates at the next 2 Fed meetings, according to Fed Chairman Powell, is already priced in.