The Canadian dollar strengthened against the US dollar on Tuesday to its highest level since October 19, as gains in oil prices continued lifting the commodity currency.
Crude oil prices rose on marketsâ anticipation of shrinking global supply. Major oil producing countries outside the Organization of the Petroleum Exporting Countries arrived to an agreement that cuts their net daily oil output by 558,000 barrels per day. The cut represents about 0.7% of the total global supply, and is expected to come into effect during the first half of 2017.
Russia alone will be reducing its production by more than half of the total cut, as the nation promised to remove 300,000 barrels from its daily supply. This adds to an output reduction by 486,000 barrels a day from Saudi Arabia, which is a part of a bigger cut from OPEC member countries. Saudi Arabia often requested the participation of Russia in any efforts to lower global glut for the kingdom to agree on reducing its own crude production.
The new deal comes after another deal that OPEC announced in November, which removes 1.2 million barrels per day from the global supply. Together, the deals will reduce global production by 2%, which reflects an unprecedented level of cooperation between major oil producers.
The agreements, which are quite delicate due to the number of involved parties and the nature of political ties between them, increased optimism that the oil oversupply will end in 2017. Following the agreements, oil prices rose, which helped the Canadian dollar gain against its major peers, as crude oil is one of Canadaâs major exports.
Traders will now shift their full attention to the result of the US Federal Open Market Committeeâs meeting that ends tomorrow. The meeting, which lasts for two days, is expected to end with a decision to raise US interest rates by 0.25% to between 0.50% and 0.75%, which will support the US dollar against its Canadian counterpart.
USD/CAD traded at 1.3122 as of 15:50 GMT on Tuesday, after touching 1.3105 at 14:03 GMT, the pairâs lowest level since October 19. USD/CAD opened trading at 1.3139 today.
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