The US dollar is higher against the Canadian dollar on Thursday morning with the decline in oil prices again hurting the Loonie. The dollar continues to firm up amid haven demand as fears around the coronavirus intensify, with reaction to yesterday’s meeting of the US Federal Reserve relatively muted.
USD/CAD was higher by 19 pips (+0.14%) to 1.3173 with a daily range of 1.319 to 1.322 as of 9.30am GMT.
The currency pair rallied throughout Wednesday then paused near 1.32 before the US interest rate decision at 19:00 GMT. It was rangebound after the meeting but began to rise again this morning, making a fresh 6-week high.
The reaction to the decision by the US Federal Reserve to keep interest rates at current levels was minimal across rates and forex markets. The decision to keep the benchmark interest rate unchanged at 1.50-1.75% was fully expected, as was the small tweak to bank overnight funding rates known as the IOER.
Less expected was something of a ‘dovish pivot’ in the statement issued by the Fed and the language used by Fed Chair Jerome Powell. As a reminder, being dovish means being more likely to cut interest rates. Powell put a lot of emphasis on the need to meet the central bank’s inflation target, which is currently being missed by the Fed’s preferred measure of inflation known the Personal Consumption Expenditures Price index (PCE).
Falling oil prices are an ongoing headwind for the energy commodity-backed Canadian dollar. While the relationship between oil and USD/CAD is not as straightforward as it once was because of US oil production, it is still there. Canada is a big exporter of oil and its economy will be pressured by falling oil prices.
Brent crude oil was lower by 0.6%, at US$59.50 a barrel early Thursday, having risen 0.5% on Wednesday. US crude was down 0.6%, at $53.00 a barrel, after dropping 0.3% in the previous session. Oil had the double whammy of higher than expected US inventories, suggesting excess supply, while multiple airlines cancelling flights to China means lower fuel demand.
