Sun, May 19, 2024

USD/CAD Hits 1.3640 Amid PPI Surge and Rising Oil Prices

Wibest – Canadian Loonie: Canadian dollar (CAD) bills and coins.

Quick Look:

  • USD/CAD’s recent drop to 1.3640 was influenced by a weaker US dollar and PPI data exceeding expectations.
  • The Bank of Canada’s aggressive monetary policy includes a potential 100 basis point cut in 2025.
  • Wildfires near Canadian oil sands push WTI crude to $78.30, impacting commodity-linked CAD.

The USD/CAD exchange rate has shown fluctuations this week. The pair recently moved to 1.3640, influenced primarily by a weaker US Dollar. Besides, investor reactions to recent US Producer Price Index (PPI) data greatly impacted the dynamic. This movement reflects the USD/CAD pair that has been edging lower due to an improved risk appetite globally.

US PPI Rises 0.5%, Surpassing 0.3% Forecast

April’s US economic data indicated a rise in the Producer Price Index (PPI). It increased by 0.5% month-on-month, surpassing expectations of a 0.3% increase and marking a sharp contrast to the previous month’s decrease of 0.1%. Similarly, the Core PPI  excluded volatile items such as food and energy. Moreover, it rose by 0.5% against forecasts of a 0.2% rise. These figures suggest persistent underlying inflationary pressure despite broader disinflation trends.

In Canada, the economic narrative has been dominated by the Bank of Canada’s aggressive monetary policy stance, with four consecutive rate cuts in 2024 and an additional anticipated reduction of 100 basis points in 2025. This aggressive approach aims to stimulate economic activity amidst varying global economic conditions.

Oil Hits $78.30, Fueling CAD as Wildfires Threaten Production

WTI crude oil has seen a significant price increase to $78.30 per barrel, primarily due to an oil supply update and ongoing wildfires near Canada’s oil sands. The wildfires, threatening the Fort McMurray area—a central hub for Canada’s oil industry—pose a significant risk, affecting approximately 3.3 million barrels per day of oil production. This situation has inevitably played a role in the recent uptick in oil prices, influencing commodity-linked currencies like the Canadian Dollar.

USD/CAD Forecasted to Reach 1.3700 by June 2024

From a technical perspective, USD/CAD has been trading within a bullish flag or consolidation area, with key support and resistance levels at 1.3633 and 1.3690, respectively. The 50-Day Exponential Moving Average (EMA) provides dynamic support and resistance levels.

Market analysts forecast that the USD/CAD could reach 1.3700 by the end of June 2024. This prediction is based on the contrasting interest rate trajectories anticipated between Canada and the US, with the latter possibly facing more aggressive monetary tightening, as Federal Reserve Chairman Jerome Powell indicated. Powell recently expressed concerns about inflation, anticipating a continued decline but with less confidence in the disinflation outlook. He also highlighted expectations of US GDP growth reaching 2% or higher, buoyed by a robust labour market.

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