Canadian Dollar (CAD) Turns Higher On Oil Supply Fears
Canadian Dollar gained the upper hand against the US Dollar during Tuesday's trading session due tot he rising oil prices. One of Canada's largest export is oil, and any increase in this commodity price also supports the CAD.
If we look at the reason behind the increase in oil prices, it can be attributed to the supply cuts introduced by Russia and Saudi Arabia. The supply cuts have paved the way for supply fears which are now translating into increased oil prices.
In addition, the manufacturing PMI data from Canada few also released recently, which showed a contraction. However, the pace of the contraction was slower than expected. So that's yet another thing that the Canadian Dollar (CAD) has going on in its direction.
For now, the USD/CAD pair is trading in the bottom range of 1.23s with little volatility expected due to the US 4th July holiday.
CAD Is Up By 0.25%
Overall, the Canadian Dollar has inched 0.25% higher due to the increase in oil prices. In addition, the global growth outlook is also muted, which is further intensified by the supply cuts from Russia and Saudi Arabia.
At the last meeting, the Bank of Canada lifted the interest rate by 0.25%, which means the policy rate in Canada is now 4.75%. The recent rate hike was introduced after a 5-month pause and told us that the long-term policy of BoC remains unchanged.
During the month of May, Canadian GDP gained 0.5% after showing almost no progress during the month of April. This has also raised the expectations that BoC may introduce more rate hikes.
Core inflation which is also a closely watched indicator, also fell to 3.7% during May against a forecast of 3.9%. A month earlier, the core inflation in Canada was 4.1% which reveals that progress is indeed made in this regard.
The Bank of Canada wants to bring the inflation down to the 1% - 3% range, but the recent value is still outside this range.