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The CAD Shows Weakness Due To Crude Oil Price Declines
By Isaac Ndegwa
The Canadian dollar has continued its inter-week decline against most major currencies owing to the decline in crude oil prices, following very mixed data regarding inventory levels. The crude oil marked for the September delivery has dropped to $46.14 a barrel. The American Petroleum Institute has released new data that points towards a decline of just about a million barrels over the week that ended 12 August. This is a different story compared to the US gas inventories which have instead risen by over 2,000,000 barrels, setting a 6 month high.
The loonie has put up a losing fight against the US dollar trading at 1.2918 before FOMC minutes were released and falling even further to trade at 1.2843 an hour after. On the downside, the 1.3080 remains a reliable ceiling above which we can convincingly say that the USDCAD is attempting a recovery. The EURCAD has remained at 6 day lows below 1.45100. US crude oil official data is expected towards the end of the New York session, with people expecting worse times for the loonie.
Sticky relationship between CAD and crude oil prices
The unusually sticky relationship between the CAD and the crude oil prices has been in the offing for about 15 years. The energy sector has been a key driver in the economy with the most treasured export in Canada being natural resources. It is “normal” to see the Canadian dollar suffering some weakness whenever the oil and gas commodity shows turmoil. The currency mimics the trend that the crude and petroleum exports take. The oil and loonie correlation became strong around 2003/4 and the CAD has especially enjoyed the good spells of strength whenever the oil demands grew, owing to strengthening economies in China and USA.
Canada still considered a stable investment destination
The Canadian dollar had traditionally been considered weak in the mid-nineties but that started to change when oil prices started to gain towards the $100 per barrel level. It is only understandable that the oil prices have started to stabilize in recent times and that carry-on effect is felt on the loonie. Very few other factors have such a great effect on the Canadian dollar. Canadian bonds however look attractive considering the influx of foreign investors looking for extra cover from the economic instability developing in the global scene. Canada still maintains a AAA cradit rating while other economies suffer steady decline.
Canada still maintains its preferential status when asset investors are looking for a stable economy to keep their money. The foreign investments level in Canada affect the loonie just the way the US economy is affected.
The loonie has put up a losing fight against the US dollar trading at 1.2918 before FOMC minutes were released and falling even further to trade at 1.2843 an hour after. On the downside, the 1.3080 remains a reliable ceiling above which we can convincingly say that the USDCAD is attempting a recovery. The EURCAD has remained at 6 day lows below 1.45100. US crude oil official data is expected towards the end of the New York session, with people expecting worse times for the loonie. Sticky relationship between CAD and crude oil prices
The unusually sticky relationship between the CAD and the crude oil prices has been in the offing for about 15 years. The energy sector has been a key driver in the economy with the most treasured export in Canada being natural resources. It is “normal” to see the Canadian dollar suffering some weakness whenever the oil and gas commodity shows turmoil. The currency mimics the trend that the crude and petroleum exports take. The oil and loonie correlation became strong around 2003/4 and the CAD has especially enjoyed the good spells of strength whenever the oil demands grew, owing to strengthening economies in China and USA.
Canada still considered a stable investment destination
The Canadian dollar had traditionally been considered weak in the mid-nineties but that started to change when oil prices started to gain towards the $100 per barrel level. It is only understandable that the oil prices have started to stabilize in recent times and that carry-on effect is felt on the loonie. Very few other factors have such a great effect on the Canadian dollar. Canadian bonds however look attractive considering the influx of foreign investors looking for extra cover from the economic instability developing in the global scene. Canada still maintains a AAA cradit rating while other economies suffer steady decline.
Canada still maintains its preferential status when asset investors are looking for a stable economy to keep their money. The foreign investments level in Canada affect the loonie just the way the US economy is affected.
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By Isaac Ndegwa
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