The Canadian dollar still continues to be restrained in the 1.2710s range due to the movement of oil prices and disappointing trade balance data.
The USD/CAD rate has been consolidating in the upper range of the 1.2650s for the last ten days. When the news was written in the Asian session on Wednesday (9/February), the Petrodollar was still stuck in the 1.2710s range due to the movement of oil prices and disappointing Canadian trade balance data.
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| USD/CAD Daily Chart via TradingView |
Prices for both Brent and WTI crude have declined about 2 percent since yesterday, further away from the multi-year record highs just hit on Monday. The good news regarding the US-Iran peace talks opens up opportunities for an increase in oil exports from OPEC member countries, thereby undermining the rally in oil prices.
Brent fell from the range of USD93.66 yesterday to the level of USD90.80 per barrel today, while WTI fell from USD91.92 to the range of USD89.00 per barrel. Oil is one of Canada's main export commodities, so falling prices also hit the CAD outlook.
"Some of that (Canadian dollar) weakness has been linked to the pullback we're seeing in crude prices," said Edward Moya, senior market analyst at OANDA New York. "The relentless rally in oil seems to be showing signs of exhaustion."
Meanwhile, the Canadian Statistics Agency yesterday delivered bad news regarding the December 2021 trade balance. Imports hit a new record high and exports tumbled, resulting in Canada scoring a trade balance deficit of CAD137 million. Whereas, the previous consensus expected a surplus of CAD2.5 billion.
The USD/CAD exchange rate was also boosted by expectations of more favorable interest rates, inflation, economic growth, and bond yields for the US dollar. The yield on Canadian 10-year government bonds has increased to 1.854%, but the difference with the US Treasury 10Y has widened. The yield difference between the two neighboring countries increased to reach the largest gap since September 2021.
Market participants will next monitor the release of US inflation data tomorrow evening. Provisional consensus estimates that the US consumer inflation rate in January 2022 grew 7.3 percent (Year-on-Year), or higher than the 7.0 percent increase in December 2021.
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