The US dollar is higher against the Canadian dollar on Monday morning, adding to the gains made last week after the monetary policy meeting of the Bank of Canada opened the door to lowering interest rates in Canada. The US dollar is acting as a haven for investors during the outbreak of the coronavirus, while a steep fall in oil prices is seeing demand fall for the commodity-backed Canadian dollar.
USD/CAD was higher by 42 pips (+0.32%) to 1.3184 with a daily range of 1.314 to 1.319 as of 9.30am GMT with the currency pair breaking out to new 2020 highs.
The Loonie
The Canadian dollar has fallen to six-week lows at the start of the new trading week in currency markets. The fall in the Loonie has been accompanied by a sharp fall in oil prices with traders worried the spread of the coronavirus and the associated travel restriction will curb oil demand. Brent crude oil is lower by 2.2% on Monday at the time of writing, that adds to big losses felt last week. Last week Brent crude oil fell 6.4% and US West Texas Intermediate (WTI) fell more than 7%, marking the worst week since July.
It has been reported that China has locked down travel in the province of Hubei, the home to the city of Wuhan where all cars have been banned from the streets. Long-distance bus services leaving Beijing have also been cancelled. Neighbouring Hong Kong has classified the virus outbreak as an emergency and Disneyland Hong Kong closed on Sunday.
As a large oil-exporting country, Canada loses out on economic activity and tax revenues if oil prices fall and the demand for oil drops.
The United States is now the world’s largest energy-producer, but the US dollar is also the world reserve currency. So while falling oil prices will hurt the oil industry, one of the fastest growing parts of the US economy, traders still prefer to hold onto a reserve currency in times of uncertainty.
At 15:00 GMT US New Homes Sales data is expected to show 0.73M new homes were sold in December, up from the 0.719M reported in November.
