On Thursday, new bearish players entered the USD/CAD currency pair. It was counterbalanced with significant downward pressure, particularly from the often unseen forces that shaped market dynamics. Now trading close to the 1.3815 area, the pair has seen a minor reversal of 0.15% on the day. Partially driving this trend are rising oil prices. A weaker U.S. dollar works against this as well, underscoring continued economic uncertainties.
The Canadian Dollar (CAD) is directly impacted by changes in crude oil prices as petroleum is Canada’s most valuable export. Raw crude oil prices are recovering after a short-lived retreat from a one-week high. That change in fortune has been a tailwind for the CAD. Because Canada is such a large oil producer, fluctuations in oil prices can quickly impact the value of the CAD. That can result in strong short-term trading opportunities on an often volatile market.
Economic Factors Pressuring USD/CAD
For reference, the USD/CAD pair recently pulled back from a two-decade high it touched back in February. This move is emblematic of the maneuvering within the foreign exchange market. The U.S. dollar would find it difficult to get real buyers worldwide. Of course, this challenge is compounded by increased economic uncertainty and rapidly shifting trade policies under President Donald Trump. His mercurial approach to trade has consequences that go beyond the short-term U.S. economic health and spill over borders, creating policy chaos as well; just ask Canada.
Once considered a wild card, hopes for a new U.S. —Canada produce trade deal has coalesce into a reassuring stabilizing force for the CAD. These advances would be great news for the Canadian economy, thanks to stronger trade ties. These hopes weigh on the USD/CAD cross. This puts them in a position to have the CAD appreciate against the dollar which strengthens the selling interest in USD/CAD even further.
Positive proclamations about upcoming trade agreements can send the CAD soaring. Fears over demand, fueled by fading expectations for a quick end to the U.S.-China trade war, keep crimping any big jumps in crude oil prices. This uncertainty has the potential to create instability in oil price that will directly impact CAD valuations.
Crude Oil Prices and Their Impact
One of the most important crude oil prices fundamentals influencing the USD/CAD currency pair today. As Canada is one of the top five oil producers in the world, their economy is directly impacted by how well the oil markets are doing. The recent uptick in crude prices has done much to bolster investor optimism surrounding the Loonie. That is why the currency has been more resistant to the U.S. dollar’s pressures.
The dynamic between oil prices and CAD manifests strongest during periods of heightened market uncertainty. Even with all this positive traction in oil prices, the specter of demand concerns continues to hover overhead out of fears for global trade shifts. This duality often leads to a hostile environment for traders looking to profit on short-term momentum.
Further, when crude oil prices do change, they often have wave effects that radiate outward through the economy. If prices start shooting up, that would be a positive spillover for Canadian economic growth, reinforcing CAD strength. If demand side issues are the main driver of oil prices, the Loonie could fall. Under this proposed amendment its value would be even more than 100 times that of the U.S. dollar.
Market Outlook and Future Implications
Despite recent market volatility, largely influenced by global economic headwinds, the outlook continues to point towards further USD/CAD fluctuation. The tug of war between higher oil prices and continued uncertainty over U.S. trade policy will continue to make traders nervous. Therefore, market participants should keep a close eye on developments in both areas.
Getting the balance of crude oil dynamics right makes for many trading opportunities. Traders need to stay on top of these changes to find the best possible entry and exit points. Learning how these factors play off one another will be crucial in navigating the stormy sea of currency trading over the next several weeks.