Traders looking to pair the US dollar and the Canadian dollar are seeing a slight reversal of fortunes today following a dip last week.
Problems began to arise for the pair last week, especially after the value dropped to below 1.3150. But this week appears to hold a more promising outlook. On Monday, the pair rose to above 1.3170.
On Friday last week, a wider trend towards selling off the US dollar was largely behind a decline in the pair’s performance. By the start of this week, the sell-off was essentially over, giving investors the confidence to move back into the market.
But part of the resurgence in the USD/CAD pair lies in wider economic trends.
The Canadian dollar dipped substantially due to question marks over whether or not it will continue to be able to compete well on the international oil market.
This comes as a result of President of the United States Donald Trump’s discussion with the King of Saudi Arabia at the weekend, in which the pair committed to improving Saudi Arabia’s oil production levels.
One possible route towards this is the lifting of Saudi Arabian production limits.
“Just spoke to King Salman of Saudi Arabia and explained to him that, because of the turmoil & disfunction [sic] in Iran and Venezuela, I am asking that Saudi Arabia increase oil production, maybe up to 2,000,000 barrels, to make up the difference,” President Trump wrote on Twitter.
Oil is one of Canada’s major exports, and increased international competition from a move like this could have substantial effects on the value of the country’s currency.
There is still hope for the Canadian dollar – and the country’s oil industry. Saudi Arabia did not publicly commit to raising the ceiling on its production levels, and Donald Trump’s office in the end issued a further statement which made it less clear that an agreement had been reached.
But other macroeconomic trends are also looking likely to affect the Canadian dollar.
Canada’s central bank, the Bank of Canada, is believed to be on the verge of raising interest rates by over 20 basis points when it meets later in July.
However, some analysts believe that these new figures regarding the Canadian dollar’s performance over the weekend could have a real impact on whether or not this rate increase actually takes place.
In the event that the low performance of the Canadian dollar persists or it is judged to pose too much of a risk to the wider economy, the bank may hold off on raising interest rates for another month.
More generally, there are several other factors which could affect US dollar/Canadian dollar trading.
Today’s release of some major sets of economic data in the USA, including those on May construction spending and several others covering manufacturing, may also have an effect on the currency pair’s performance. Canada’s markets, meanwhile, could be affected by yesterday’s Canada Day holiday.