The Canadian dollar is strengthening against its US peer on Tuesday as crude oil prices rallied to above $45. The loonie has surged by more than 1% this month, making the currency on track to erase its 2020 loss after stabilizing in the second half of the year. With soaring energy prices and a national economy recovering in the aftermath of the coronavirus pandemic, is the Canadian dollar setting itself up as the next top currency in 2021?
It was all quiet on the data front on Tuesday as the only major economic finding â average weekly earnings for September â on Thursday. The loonie is now finding direction on energy commodities and a sliding greenback. As oil prices head into the new year with ample momentum, the loonie could benefit.
January West Texas Intermediate (WTI) crude oil futures surged $1.79, or 4.16%, to $44.85 per barrel at 15:50 GMT on Tuesday on the New York Mercantile Exchange. January natural gas futures tacked on $0.061, or 2.16%, to $2.884 per million British thermal units (btu).
Canada maintains a current account deficit, so its economy depends on exports to grow the gross domestic product (GDP). Since oil and gas remain the nationâs biggest exports, any substantial change in prices â high or low â can impact the loonie and the broader Canadian economy.
The bond market was mostly in the green on Tuesday. The benchmark 10-year bond rose 0.021% to 0.712%. The one-year note was flat at 0.19%, while the 30-year bond climbed 0.019% to 1.218%.
Are political developments occurring south of the border affecting the currency? President-Elect Joe Biden was given the formal approval to start his White House transition, an announcement that lifted investor sentiment on the belief that the economy could recover amid additional stimulus spending.
Canada ships 75% of its exports to the US, so a healthy US economy is critical for the Great White North.
Meanwhile, Finance Minister Chrystia Freeland announced that the federal government would offer a “full” update on federal spending on November 30. Ottawa has promised to support citizens and businesses as the nation is engulfed in the second wave of COVID-19.
The USD/CAD currency pair fell 0.44% to 1.3029, from an opening of 1.3085, at 15:56 GMT on Tuesday. The EUR/CAD slipped 0.12% to 1.5478, from an opening of 1.5494.
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