USD/CAD: Canadian Dollar Weakens As Oil Drops Over 4%

The Canadian dollar weakened versus the US dollar on Wednesday. The US dollar Canadian dollar exchange rate broke above the 1.30 mark during the US session on Wednesday and continued pushing higher to reach a peak of 1.3044. This is the highest that the pair has traded at since 31^st December.

The dollar rose in late trade on Wednesday as investors’ concerns over escalating tensions between US and Iran eased following President Trump’s press conference. Following the attack by Iran on US military bases in Iraq, the White House confirmed that there were no causalities and that damage had been negligible. Trump said that “Iran appears to be standing down” whilst commenting that it is “a good thing” for all parties involved.

US economic data was also supportive of the greenback. The ADP private payroll report showed that private payrolls grew by an impressive 202,000 in December, beating analysts’ forecasts of 160,000 in another sign of a healthy labour market. The ADP report is closely correlated to the non-farm payroll. The NFP is the most closely watched macro data release of the month. A strong ADP reports bodes well for Friday’s NFP release.

Today investors will continue to monitor the situation in the Middle East. Investors will also switch their attention towards Friday’s non-farm payroll jobs report.

Ebbing Middle Eastern Tension & High Inventories Drag Oil Lower

Falling crude oil prices weighed on the value of the commodity sensitive Canadian dollar in the previous session. West Texas Intermediate tumbled 4.4% on ebbing Middle Eastern tensions, to close Wednesday’s session at $59.94. After spiking to a 9-month high of $65.65 on reports of Iran attacking US military base in Iraq, crude oil then made a sharp U-turn later in the US session after President Trump’s press conference.

Falling crude oil inventories also dragged on the price of oil. Inventories unexpectedly rose by 1.2 million barrels from the previous week. Given the oil is Canada’s largest export, the Canadian dollar is closely correlated to the price of crude oil.

Investors will continue monitoring oil prices. Investors could also glance towards the release of Canadian housing starts and building permits for further clues over the health of the Canadian economy.

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