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Canadian dollar strengthens amid market stability and rate speculation, while oil prices decline

Canadian dollar strengthens amid market stability

The Canadian dollar exhibited resilience and strengthened against its U.S. counterpart amid a backdrop of financial markets finding stability. This prompted investors to carefully weigh and analyze the likely timing of interest rate adjustments by both the Bank of Canada and the Federal Reserve.

Trading at a 0.1% uptick to 1.3545 against the U.S. dollar, or equivalently 73.83 U.S. cents, the loonie showed signs of recovery, bouncing back from its recent dip observed on Tuesday to its lowest intraday level since December 13, reaching 1.3586.

Wall Street staged a noteworthy rebound following the previous day's tumultuous activity, which was fueled by concerns over higher-than-anticipated U.S. inflation figures. This rebound led to a retreat of the U.S. dollar from recent advances against a basket of major currencies.

Amo Sahota, director at Klarity FX in San Francisco, pointed out a calming effect in the Canadian dollar post-Tuesday's sell-off. He suggested that a significant downturn in the loonie would require a substantial alteration in the anticipated timing of interest rate adjustments by the two central banks.

Market sentiment currently reflects approximately a 60% probability of the Bank of Canada commencing interest rate reductions by June. Additionally, full pricing indicates an easing by then from the Federal Reserve.

Notably, BoC Deputy Governor Toni Gravelle is scheduled to address the normalization of the central bank's balance sheet in a speech planned for March 21. This was highlighted by the CFA Society of Toronto, fueling speculation among analysts that the BoC might be nearing the conclusion of its quantitative tightening program.

Meanwhile, the price of oil, a cornerstone of Canada's exports, experienced a decline of 1.2% to $76.97 per barrel. This decline was driven by a surge in U.S. crude inventories, which exerted downward pressure on prices, despite the supportive backdrop of OPEC's optimistic forecast for robust demand growth.

In tandem with movements in U.S. Treasuries, Canadian government bond yields softened across the yield curve. The 10-year yield retracted by 9.7 basis points to 3.554%, following its earlier peak on Tuesday to the highest intraday level in 2-1/2 months at 3.695%.

usdcad,daily chart, forex analysis
USD/CAD, daily chart, MetaTrader, 15.02.2024



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