The Canadian dollar (CAD), commonly referred to as the "loonie," has recently experienced pressure against the backdrop of a weakening U.S. dollar. Last week, CAD was noticeably subdued as it responded to the strength of the USD. However, expectations for a rebound have emerged, particularly as oil prices trend upwards—an essential factor for the economy given Canada's status as a significant oil exporter.
Recent rate cuts by the Bank of Canada, which brought the key policy interest rate down to 2.25% amid concerns over a softening job market and economic uncertainties, continue to weigh on the loonie. Analysts indicate that if the economic risks persist, further easing could be in the cards, thereby potentially adding further downward pressure on the CAD.
The U.S. labor market data released on November 6 showed over 150,000 job cuts in October, the highest in two decades. This shocking figure has bolstered expectations for a Federal Reserve interest rate cut, indirectly providing some support to the CAD as the U.S. dollar weakened in response.
As for oil prices, while current levels around $64.29 per barrel are approximately 2.1% below their three-month average, the volatility in the oil market remains a key concern and determinant for the CAD's movement. Typically, rising oil prices correlate positively with a stronger CAD due to increased revenues from Canadian oil exports, so traders are closely monitoring any upward trends.
In recent trading, the CAD/USD exchange rate sits around 0.7126, just 0.8% below its three-month average. The CAD is currently stable in a relatively narrow range of 2.8%. against the Euro, the loonie is trading at 0.6128, hitting 14-day lows, while it holds a stronger position against the pound at 0.5415, positioned 1.0% above its three-month average.
The CAD's trajectory remains heavily influenced not just by oil market fluctuations but also by the delicate balance of U.S.-Canada trade relations and ongoing tariff discussions. As these dynamics unfold, traders will need to stay vigilant on further economic indicators and policy shifts from both the Bank of Canada and the Federal Reserve.
