The US Dollar to Canadian Dollar exchange rate has fluctuated since OPEC announced its oil production cutting plans on Wednesday, but as markets cool and the effects of the cut begin to show, this could affect the long-term USD CAD trajectory. The exchange rate remains over a cent below the week’s opening levels of 1.35.
US Dollar (USD) Bullishness Limited Despite Positive Projections
The US Dollar has seen mixed demand over the last week, as while upside factors in the ‘Greenback’ remain strong, the currency has faced significant psychological resistance after weeks of bullish movement.
This has limited its gains against many major rivals, including the Canadian Dollar, despite both currencies benefitting from OPEC’s plans to cut oil production by 1.2m barrels a day.
Recent US data has been strong and helped keep December Federal Reserve rate hike bets at a considerably solid 99%.
The latest set of US figures to impress included ADP’s November employment change results, which came in at 216k and added to hopes that this week’s highly anticipated Non-Farm Payroll results would print strongly.
Canadian Dollar (CAD) Holds Ground on OPEC’s Oil Cut Plans
Canadian Dollar (CAD) exchange rates have been highly volatile recently due to ongoing speculation over what OPEC would decide in this week’s meeting and whether or not it would have a lasting effect on prices of oil, Canada’s most lucrative commodity.
When OPEC finally met on Wednesday and laid out its plans for member states to cut oil production by a cumulative 1.2m barrels a day, prices of the commodity surged, as did the Canadian Dollar itself.
This allowed the ‘Loonie’ to hold its ground against the US Dollar, which also benefitted due to higher inflationary expectations following hopes of higher oil prices in the long-term.
However, while oil prices continued advancing on Thursday, the Canadian Dollar’s strength faded as analysts began to doubt how much effect this would really have in the long run.
The Canadian Dollar also failed to benefit from Wednesday’s Canadian growth data, despite it beating expectations considerably in September and Q3 prints.
US Dollar Canadian Dollar Forecast: Is it Realistic to Expect Long-Term Oil Price Improvements?
OPEC’s highly anticipated November meeting has come and gone, all that’s left to wait for is the oil output cut plans to take effect on the oil market.
However, as always many analysts have taken a bearish stance since the announcement on whether this will actually make a real difference, here’s why:
OPEC member nations are cutting oil production, some more than others. One member nation had to quit the OPEC bloc (Indonesia) because it could not afford to cut oil production for economic reasons.
Non-OPEC nations are also, of course, free to continue producing as much oil as they like. Many have speculated that Russia, rather than following OPEC advice and cutting output slightly itself, may instead increase output and fill in the black hole to benefit.
So while many traders and some analysts are optimistic that oil prices could see a long-term improvement, the reality is that it will be highly dependent on how non-OPEC oil producers react and whether or not they cooperate.
The Canadian Dollar is far more closely correlated to oil prices than the US Dollar. As a result, USD CAD could see a new long-term downside factor if prices of the commodity do improve.
At the time of writing, the US Dollar Canadian Dollar exchange rate trended in the region of 1.34, while the Canadian Dollar US Dollar exchange rate traded at around 0.74.
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