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USD to CAD Update: Two forces pulling the Canadian dollar in opposite directions

As of late, there have been two opposing forces pulling the Canadian dollar in opposite directions.  On the one hand, we have the price of oil, which is up again today and trading at yet another multi-year high.  Both WTI and Brent are now trading at levels not seen since 2014.  The rally in oil is largely due to shortage of natural gas which is causing a switch to oil products for certain energy requirements.  Oil remains Canada’s top export and the Canadian dollar is heavily influenced by the price of the commodity.  As such, higher oil prices have been pulling the Canadian dollar up.  Working against the Canadian dollar has been rising US bond yields.  The US 10-year is now yielding 1.5%, up from 1.15% at the beginning of August.  That rise in yields comes largely in response to markets preparing for tapering of the Fed’s asset purchases to begin in November.  In turn, rising yields, combined with concerns about weaker global economic growth and higher inflation, have created an overall cautious environment.  One outcome of that environment has been pressure on stocks, especially interest-sensitive technology stocks.  Rising US yields, cautious sentiment, and declining stock markets have all contributed to a broadly stronger US dollar at the expense of “risk currencies” like the Canadian dollar.  So, the Canadian dollar is caught between surging oil prices and higher yields.  Yesterday, rising oil prices were the stronger force and the Canadian dollar moved up even as yields creeped up and stocks sold off.  This morning, oil prices are up and stocks have recovered some as US treasury yields are holding steady at the 1.5% level.  As such, the Canadian dollar is now trading at around its highest level in a month.  USD to CAD is currently at at 1.258 (CAD to USD is at 0.794).


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