The Canadian Dollar Mounts Overnight Recovery vs USD as Oil Ticks Higher

September 14, 2017 - Written by John Cameron

STORY LINK The Canadian Dollar Mounts Overnight Recovery vs USD as Oil Ticks Higher

The Canadian to US Dollar exchange rate picked itself up from a weekly low overnight on Wednesday as the pairing was bolstered by an uptick in oil prices.

At the time of writing the CAD/USD is -0.32 per cent lower at 0.81916 (14-09-2017).

Canadian Dollar (CAD) Climbs as Oil Strengthened by IEA Report

The Canadian Dollar mounted a recovery late on Wednesday as the oil-correlated currency was bolstered by a sudden surge in crude prices.

WTI Crude futures leapt 2.2% to $49.30 a barrel yesterday, striking a new five-week high as sentiment was improved by a report from the International Energy Agency (IEA).

In its latest monthly report the IEA said that strong growth in oil demand and efforts by OPEC to reduce output, was having a notable impact on global oil inventories.

The agency claimed that demand had seen a significant pick up in the second quarter this year, prompting it to revise up its consumption estimate to 1.6 million barrels per day for 2017, the second consecutive month the IEA has risen its forecasts after previously raise its estimate to 15 million bpd last month.

While the closing of US refineries in the wake of Hurricanes Harvey and Irma is expected to have led to a notable drop in global demand over the coming months the IEA appeared to remain upbeat about the potential for further gains for the commodity.

In a note released yesterday the IEA said;

‘OECD demand growth continues to be stronger than expected, particularly in Europe and the US. Based on recent bets made by investors, expectations are that markets are tightening and that prices will rise.’

However the IEA tempered its report by suggesting that any rise was likely to remain ‘modest’ and that even if OPEC decides to extend its production cuts into the 2018 that the impact on global supplies was unlikely to be all that dramatic.

US Dollar (USD) Lifted by Rise in PPI Figures

While it may have relinquish some of its gains in overnight trade the US Dollar was propelled higher yesterday on the back of the country’s latest Producer Price Index (PPI) as it rebounded in August.

According to data published by the US Labour Department on Wednesday US PPI figures rose by 0.2% last month, slightly behind expectations it would reach 0.3% but up from the 0.1% decline seen in July.

Analysts suggested that the rebound was largely down to surging fuel costs as the supplies were constrained by the closure of refineries in the Texas area.

However economists are wary that yesterday’s rise will do much to alleviate concerns from Federal Reserve policymakers that inflation remains below target.

John Ryding, chief economist at RDQ Economics in New York said;

‘Energy price gains, which will likely dominate the September inflation reports in the aftermath of Hurricanes Harvey and Irma, will likely be viewed as having a temporary impact on inflation by the Fed.’

CAD USD Exchange Rate Forecast: US Inflation Data to Undermine Chances of Fed Rate Hike?

All eyes will be on the latest US Consumer Price Index (CPI) later this afternoon as investors attempt to determine whether the Federal Reserve will remain on track to raise interest rates one additional time later this year.

The Fed has frequently pointed to low inflationary pressure in the US as a cause of concern and a possible barrier in tightening monetary policy in the near future.

With economists forecasting that core inflation may have slipped to a two-year low of 1.6% in August -well below the Fed’s 2% target rate- the US Dollar may find itself tumbling this afternoon as expectations of a December rate hike are dampened even further.

Meanwhile the Canadian Dollar may climb further during the American session today as analysts predict that Canada’s New House Price Index may have climbed from 0.2% to 0.3% in July.

Current Interbank Exchange Rates

At the time of writing the CAD USD exchange rate was trending around 0.8209 and the USD CAD exchange rate was trending around 1.2177.

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