The Canadian dollar eased against the US dollar in the morning session as oil prices extended the losses and as the investors waited for the outcome of the interest-rate announcement from the Bank of Canada. Apparently, the strong likelihood of a rate hike lifted the greenback, which made most the currencies weak. The respective monetary policy meeting of the central banks also sent the currencies up and down these past few days. With the looming volatility in the market, can the loonie find stability in the coming days?
At the time of writing, the Canadian currency lost 0.11 percent against the firm greenback. USD/CAD edged higher to 1.3289, advancing 0.0012 after the opening bell on Wednesday. As seen in the hourly USD/CAD graph, the pair traded in a tight trading range since the start of the week. The pair opened at 1.32850 with a session high of 1.32897 and a session low of 1.32779.
Currency, USD/CAD is trading close to its 20-day SMA of 1.32828 and 50-day SMA of 1.32804. The pair found resistance at 1.32997 and support at 1.32710. In case of a breakthrough, the pair will likely have a new resistance at 1.33040 while the new support will stand at 1.32635.
Considering the tight trading range, USD/CAD may trade between 1.32900 to 1.32700 levels before the market closes today.
Commodity Currency
As a commodity currency, the value of loonie weakens whenever the commodity prices slide in the market. In relation to this, the crude oil prices plummeted after the massive rally the previous week as the investors remained in a cautious trading. Unexpectedly, the market brushed off the reported drop of crude oil inventories to 2.2 million barrels last week.
On the New York Mercantile Exchange, WTI crude oil for January contract declined 0.37 percent to $50.74 per barrel. Brent crude for February delivery on the International Commodity Exchange dropped 0.17 percent to $53.84 per barrel.
Despite the build of gasoline inventories, natural gas on Nymex added 1.02 percent to $3.67 MMbtu while RBOB Gasoline rose 0.40 percent to $154.20 per gallon. According to the American Petroleum Institute, the gasoline stocks increased 830,000 barrels while distillate inventories rose 4.1 million barrels.
Official Cash Rate
The Bank of Canada is scheduled to release its decision on the target for the overnight rate late today at 10:00 eastern time. Last October, the central bank maintained its target for the overnight rate at 1/2 percent, while the bank rate is correspondingly 3/4 percent and the deposit rate stood at 1/4 percent. The Bank’s Governing Council found the rates appropriate as the risks in the Canadian economy would likely remain.
In this final interest-rates announcement from the bank, the bank is expected to keep the figures as the oil market is still prone to fluctuations until the first quarter of 2017. With the Federal rate increase on the way and only a slow pace growth of the Canadian economy, it would be a wiser move for the bank to hold its rates.
As long as the rates remain as low as it is in the present, the Australian currency would probably settle below the US dollar. However, after the market digests the market changes starting 2017, the oil prices might surge again and the commodity currencies will definitely benefit on this. Therefore, the financial; market would stay on the waiting shed for the coming weeks.