The US dollar index, which measures the greenback against a basket of other major currencies, is once again nearing last week’s one-year high. Typically, such broad US dollar strength would put pressure the Canadian dollar. But the loonie is resisting the overall trend and remains near a one-month high against the greenback. The reason that the Canadian currency is bucking the trend is the elevated price of oil. There is no near-term solution in sight to the demand and supply imbalance in the energy markets. Russia, a major oil and natural gas exporter, seems to be attempting to talk the market down by suggesting that increased supplies of natural gas to Europe are on the way and urging OPEC to consider calming down the markets. That has caused a modest decline in price of oil today but it remains very near their highest levels in 7 years. Stocks are rallying on news out of Washington that a resolution to the debt ceiling impasse is near. We expect that rally to fizzle out soon as the US 10-year is creeping up again to above the 1.55% level. With the oil rally on pause and yields creeping up, our view remains that we are more likely to see the value of USD move up against CAD in the near term. USD to CAD is currently at at 1.257 (CAD to USD is at 0.795).
