The Canadian Dollar benefitted today following a rise in the price of oil. Oil is one of Canada’s main exports and as such fluctuations in its price tend to correlate with the price of the Canadian Dollar. The reason for the increase in the price of oil, after a somewhat slippery couple of weeks is that U.S demand for oil has increased. These gains will probably be short lived as analysts are still predicting the Loonie to lose value.
The reason for this expected decline can be attributed to two things, firstly domestic data has been pointing to a slowdown in the Canadian economy and secondly, the over-supply of oil. The prospect of oversupply in 2018 increased yesterday and as a result has caused many analysts to cut their forecasts.
Additionally, there had been rumours that the Bank of Canada would raise interest rates in the coming months following signs of a stronger economy, following the dip in the price of oil back in 2015. The Bank of Canada decided it would drive its economy by cutting interest rates in an attempt to stop its dependency on the export of oil. Following another slip in the price of oil of late, the rumours surrounding a rate hike, which would strengthen the Loonie have diminished and as such the Canadian Dollar has come under renewed pressure.
However, there have been promising signs of life within the Canadian economy as import and export data for Canada showed better than expected results. This does provide slight proof that the Canadian economy has started to move away from relying on the export of oil for strength. Personally, I cannot see an interest rate hike anytime soon due to the volatility of global oil prices. Key economic data releases will be keenly watched over the coming weeks to try and provide evidence that the Canadian economy is strong enough to warrant a rate hike. Tomorrow should provide us some idea as the latest set of employment data is due to be released.