The Canadian dollar is advancing against its American counterpart on Tuesday, finding support in rallying energy prices, strong recent economic data, and renewed interest in the loonie. Can the Canadian dollar continue its momentum throughout the trading week or will it lean on the US dollar for direction in the final days of July?
With reports that the Chinese government wants to introduce a dynamic fiscal policy to invigorate economic growth and limit trade tensions with the US, there has been a hefty appetite for commodities.
Despite Canada being an energy-rich nation, the loonie has not seen much benefit from the bullish oil market. This has many analysts concluding that the currencyâs short-term direction depends on the progression of North American Free Trade Agreement (NAFTA) negotiations, which have stalled in recent weeks, bogging down the loonie.
On Tuesday, September West Texas Intermediate (WTI) crude futures spiked $0.81, or 1.19%, to $68.70 per barrel; and September Brent crude futures rose $0.53, or 0.73%, to 73.57 a barrel.
Investors have become attracted to the loonie in the last month, with most of the market anticipating the Bank of Canada (BOC) to raise key interest rates at least one more time this year. BOC Governor Stephen Poloz noted that the national economy is accelerating, necessitating the need for rising rates. The growing expectations lifted Canadian yields for the third consecutive session as the yield on 10-year government debt reached a five-week high, jumping one basis point to 2.236%.
The biggest concern for the Canadian economy, according to remarks by the central bank officials, appear to be rising debt levels, uncertainty surrounding NAFTA, and ballooning inflation.
Last week, national retail sales recorded a 2% gain in May, higher than the forecast of 1%. Also, the Canadian consumer price index (CPI) for June came in at an annualized 2.5%, beating the consensus projection of 2.3%.
For the remainder of the week, the Canadian dollarâs direction could depend on the greenback because there are not any economic data reports scheduled to be released for the rest of the month. The US Dollar Index was flat at 94.64.
The USD/CAD currency pair was trading at 1.3162, down 0.08%, from an opening of 1.3174 at 18:23 GMT. The EUR/CAD stood at 1.5368, down 0.21%, from an opening of 1.5401.
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