- USD/CAD depreciates as commodity-linked CAD gains ground due to higher oil prices.
- OPEC+ has extended its production cut of 2.2 million barrels per day until the end of December 2024.
- Recent polls indicate a close race between Democratic candidate Kamala Harris and Republican nominee Donald Trump in seven states.
USD/CAD offers gains from the previous two days, trading around 1.3900 during Asian hours on Monday. The commodity-linked Canadian dollar (CAD) is receiving support from higher oil prices, which could be attributed to the delay in a planned production increase by the OPEC+ coalition, which includes the Organization of Exporting Countries. Oil and its allies, like Russia.
The price of West Texas Intermediate (WTI) oil appreciated around 2% on Monday, trading around $70.50 per barrel during Asian hours. On Sunday, the OPEC+ alliance agreed to extend its 2.2 million barrels per day (bpd) production cut until the end of December 2024, citing weak demand and rising supply outside the group. In addition, member countries reaffirmed their commitment to “achieve full compliance” with production targets and offset any overproduction by September 2025.
Traders are closely watching the upcoming US presidential election on Tuesday, as the latest New York Times/Siena College poll shows Vice President Kamala Harris with slight leads in Nevada, North Carolina and Wisconsin, while Former President Donald Trump has a slight lead in Arizona. The candidates are in close races in Michigan, Georgia and Pennsylvania. Conducted from Oct. 24 to Nov. 2, the survey indicated that all matchups in seven key states are within a 3.5% margin of error.
In addition to the election, traders are also focused on the upcoming policy decision from the US Federal Reserve (Fed), with expectations of a modest 25 basis point rate cut this week. The CME’s FedWatch tool currently shows a 99.6% probability of a quarter-point rate cut by the Fed in November.
The Canadian Dollar FAQs
The key factors that determine the price of the Canadian Dollar (CAD) are the level of interest rates set by the Bank of Canada (BoC), the price of oil, Canada’s main export product, the health of its economy, inflation and the trade balance, which is the difference between the value of Canadian exports and its imports. Other factors are market confidence, that is, whether investors bet on riskier assets (risk-on) or look for safe assets (risk-off), with the risk-on being positive for the CAD. As its largest trading partner, the health of the US economy is also a key factor influencing the Canadian dollar.
The Bank of Canada (BoC) exerts significant influence over the Canadian Dollar by setting the level of interest rates that banks can lend to each other. This influences the level of interest rates for everyone. The BoC’s main objective is to keep inflation between 1% and 3% by adjusting interest rates up or down. Relatively high interest rates are usually positive for the CAD. The Bank of Canada can also use quantitative easing and tightening to influence credit conditions, with the former being negative for the CAD and the latter being positive for the CAD.
The price of oil is a key factor influencing the value of the Canadian Dollar. Oil is Canada’s largest export, so the price of oil tends to have an immediate impact on the value of the CAD. Generally, if the price of oil rises, the CAD also rises, as aggregate demand for the currency increases. The opposite occurs if the price of oil falls. Higher oil prices also tend to lead to a higher probability of a positive trade balance, which also supports the CAD.
Although inflation has traditionally always been considered a negative factor for a currency, as it reduces the value of money, the opposite has actually happened in modern times, with the relaxation of cross-border capital controls. Higher inflation often leads central banks to raise interest rates, attracting more capital inflows from global investors looking for a lucrative place to store their money. This increases the demand for the local currency, which in the case of Canada is the Canadian Dollar.
The published macroeconomic data measures the health of the economy and may have an impact on the Canadian dollar. Indicators such as GDP, manufacturing and services PMIs, employment and consumer confidence surveys can influence the direction of the CAD. A strong economy is good for the Canadian dollar. Not only does it attract more foreign investment, but it may encourage the Bank of Canada to raise interest rates, resulting in a stronger currency. However, if economic data is weak, the CAD is likely to fall.
Source: Fx Street
I am Joshua Winder, a senior-level journalist and editor at World Stock Market. I specialize in covering news related to the stock market and economic trends. With more than 8 years of experience in this field, I have become an expert in financial reporting.
