USD/CAD: Canadian dollar unmoved by oil price spike

The US dollar is marginally higher than the Canadian dollar on Monday morning as oil prices shot higher due to increased tensions in Libya. Trading volumes in the Forex market are expected to be thinner than usual with US stock and bond markets closed for Martin Luther King Jr. Day.

USD/CAD was higher by 6 pips (+0.04%) to 1.3069 as of 9.30am GMT with the currency pair at the upper end of a tight 40pip-wide 5-day price range.

The Loonie

Oil prices spiked higher overnight in a frantic response to fresh geopolitical tensions in Libya but have since given back some of the gains. Brent and WTI crude oil contracts reached a one-week high  after two oilfields in Libya shutdown when a military blockade closed a pipeline. The national oil company reported that if it continues, production will drop to the lowest since 2011.

Traditionally, with Canada being a big oil-exporting nation the Canadian dollar would benefit from higher oil prices. However, this relationship has broken down since the emergence of the US as a large energy exporter thanks to shale gas exploration.

The pipeline closure came at the same time as a peace summit in Berlin, which had agreed a tentative truce between the rival factions vying for power in Libya. The oil price gains come less than three weeks after a US drone airstrike killed an Iranian general, heightening geopolitical tensions in the Middle East, a key oil producing region.

The dollar

With US traders out of the office celebrating a long weekend and no official US economic data being released, US dollar volumes are expected to be well below daily averages.

Last week the dollar saw limited movement against the Canadian dollar despite generally upbeat economic reports from the United States. The Philadelphia Fed Manufacturing survey was a notable highlight, showing signs of a bottoming out in the industrial contraction that caught hold in 2019. US retail sales came in hotter than expected over the key Christmas period and consumer price inflation (CPI) rose to 2.3%, above the target for price stability of the Federal Reserve.

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