Get 40% Off
🤯 This Tech Portfolio is up 29% YTD! Join Now to Get April’s Top PicksGet The Picks – Just 99 USD

Canadian dollar rises as oil rally eclipses inflation slowdown

Published 2019-02-27, 03:28 p/m
Updated 2019-02-27, 03:30 p/m
© Reuters.  Canadian dollar rises as oil rally eclipses inflation slowdown

© Reuters. Canadian dollar rises as oil rally eclipses inflation slowdown

* Canadian dollar rises 0.2 percent against greenback

* Price of U.S. oil climbs 2.6 percent

* Canada's inflation rate falls to 1.4 percent in January

* Bond prices decline across a steeper yield curve

By Fergal Smith

TORONTO, Feb 27 (Reuters) - The Canadian dollar strengthened against its U.S. counterpart on Wednesday, as higher oil prices outweighed tame domestic inflation data that supported a patient approach from the Bank of Canada on raising interest rates further.

At 3:08 p.m. (2008 GMT), the Canadian dollar CAD=D4 was trading 0.2 percent higher at 1.3148 to the greenback, or 76.06 U.S. cents. The currency, which on Monday touched its strongest in nearly three weeks at 1.3113, traded in a range of 1.3119 to 1.3176.

"This is an oil move," said Eric Viloria, an FX strategist at Crédit Agricole CIB. "It looks like the correlation between oil and the CAD has increased recently and that's really a reflection of oil becoming a more relevant driver in terms of the monetary policy outlook."

The price of oil, one of Canada's major exports, climbed after a surprising plunge in U.S. crude inventories and as OPEC's de facto leader Saudi Arabia appeared unfazed by pressure from U.S. President Donald Trump to prevent oil prices from rising. U.S. crude oil futures CLc1 settled 2.6 percent higher at $56.94 a barrel. three-month rolling correlation between the Canadian dollar and oil has climbed to about 90 percent, according to Refinitiv Eikon data, indicating that the currency and the commodity move mostly in the same direction. In September last year, the correlation was negative.

The Bank of Canada is widely expected to leave its benchmark interest rate on hold at 1.75 percent when it decides on policy next week. In January it said low oil prices harmed the economy in the fourth quarter of 2018 and will continue to do so in the first quarter of this year. are expecting the Bank of Canada to resume its normalization later this year but that's not going to happen until there's evidence that the economy is getting back on track after this oil-related slowdown," Viloria said.

Lower gasoline prices pulled Canada's annual inflation rate in January down to 1.4 percent from 2.0 percent in December, reinforcing market expectations that imminent interest rate hikes are off the table. fourth-quarter gross domestic product data is due on Friday.

Canadian government bond prices were lower across a steeper yield curve in sympathy with U.S. Treasuries. The two-year CA2YT=RR fell 4 Canadian cents to yield 1.777 percent and the 10-year CA10YT=RR declined 41 Canadian cents to yield 1.915 percent.

Latest comments

Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.