Over the previous weeks, we have seen a tumultuous geopolitical climate, rife with constant threats of trade wars and escalating tensions with Iran.
At the centre of this geopolitical storm lies the United States, with President Trump threating tariffs against China and Europe as well as the USMCA agreement to replace the NAFTA deal. On the back of this, we have seen the U.S. Dollar weaken, however, it did regain its footing somewhat at the start of July.
That was until yesterday when Federal Reserve Chair Powell said that the U.S. economic outlook has dimmed since the June meeting and the current weak inflation that the U.S. us experiencing could be persistent and therefore lead to a rate cut from the Fed in the near future.
Meanwhile, in the energy markets, we are seeing Oil regain its footing and push higher, clearing the $60 a barrel mark yesterday in late trading. This is on the back of the storm in the Gulf of Mexico causing energy companies to evacuate, this also coincided with the data release out of the U.S. that crude stockpiles had fallen sharply, down 9.5million barrels.
On the back of this, we are seeing one pair flourish somewhat, that is the USD/CAD pair. With a weaker U.S. Dollar, higher Oil Prices and Oil being the main export of Canada we are seeing the Canadian Dollar strengthening against the greenback, trading higher by 4.45% since the start of the year to where we are today.
After faltering at the 1.3570 level shown on the chart by the horizontal black line, the USD/CAD rate has continued to tumble aggressively from this point, breaking through the supporting bullish trend line and eyeing the next psychological level of 1.3000. As of writing, USD/CAD has slowed its decline a little, however with CPI releases out of the U.S. out shortly we could see an increase in volatility.
In its latest monthly report, OPEC forecasted global oil demand to continue to keep rising. If they are correct and the Dollar remains softer we could see a continuation of the Canadian Dollar strengthening.
Sources: Go Markets, Meta Trader 5, TradingView, Bloomberg
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