Loonie Strengthening with Oil and a weaker US dollar

Author: Ahura Chalki

Thursday, 11 August 2022 Number of words: 475 Study time: 3 Minutes Views: 482

CAD analysis

USDCAD has been falling since July 14 with a weakening US dollar and it continued with more pace in recent days as Oil started to increase and the USD got weaker with US inflation slowing.

EIA hikes 2022 demand expectations

Easing inflation will reduce the pressure on FED to react more aggressively. Now FED watch rate for 75 bps rate hike expectation is down 36%, while it was more than 70% last week. Less hawkish policies mean that we can see more support from stock markets, that's why we can see the US and EU leading indices in green in the last few days. 

FED rate watch

Following yesterday's CPI numbers, today, the US Labor Department report showed that wholesale prices cooled down, with the PPI increasing just 9.8% annually, lower than 10.4% estimates, and down from 11.3% seen in June. Moreover, the core PPI, which excluded volatile food and energy price, in line with estimations of 7.6%, was less than June’s 7.9% annual rate. Today, as every Thursday we had US Initial Jobless Claims.

The report shows that weekly initial claims rose 262K for the week ending on August 6. Claims increased 14K from the previous week. Even though it was less than 263K estimates, but it is increasing for the second-consecutive week. These numbers can be fine to stop a downtrend, but can not encourage the stock markets' bulls. At the same time, US Dollars demand decreased in the first reaction, but expecting more fall, can be optimistic as US 10-years on Yields again started raising, and currently, it is at 2.863%, up from 2,75% seen a few days ago. 

On the other hand, Oil prices rose today by more than $3 on Thursday after the International Energy Agency raised its oil demand growth forecast for 2022, as rapidly natural gas prices increased, leading some consumers to switch to oil.

"Natural gas and electricity prices have soared to new records, incentivizing gas-to-oil switching in some countries," the Paris-based agency said in its monthly oil report. IEA raised its outlook for 2022 demand by 380,000 barrels per day (bpd). It can be challenged by OPEC monthly report, as the Organization of the Petroleum Exporting Countries cut its global demand forecast for 2022, with the emphasis that Russia-Ukraine tensions and re-increasing pandemic can affect the global economic growth. 

On the supply front, the Russian state oil pipeline monopoly Transneft restarted oil flows via the southern leg of the Druzhba oil pipeline, after that it was suspended earlier this month. Meanwhile, physical oil prices across the globe have begun to fall, confirming worries about a possible global economic slowdown.

Putting data together can confirm that this downward correction in the US dollar rate, and an upward correction in the Oil price, can be counted as a correction, and to become a trend, still needs more evidence. Therefore more downtrends in the USDCAD chart also can be optimistic. 

CAD analysis

Source: IFC Markets
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