USD/CAD Breaks Above 1.30 as Lower Commodity Prices Crush Loonie

The USD touched 10 year highs versus the CAD after commodity prices were hit by the disappointing Chinese PMI survey results. A supply glut in crude and lower demand have pushed prices below $50 and put the Canadian economy in a quagmire. The Bank of Canada was forced to cut its benchmark interest rate by 25 basis points on July 17 and there is growing expectation that the U.S. Federal Reserve will finally raise interest rates before the end of 2015. The three factors continue to push the USD/CAD higher leading into next week where the Fed will publish its FOMC announcement.

The loonie has lost almost 23 percent since touching parity in 2013. The drop in oil prices has forced the Bank of Canada into an alternative strategy to give exporters an edge via currency depreciation. It is a long shot given the lost manufacturing base in the past 10 years as the industry moved off shore. Services are leading the gains in exports, but they face higher global competition. The Canadian economy is trying to shake off a mild recession and it has the risk of being left behind of the U.S. economy can hit a sustainable pace of growth.

The USD/CAD has broken the psychological level of 1.30 and will get limited support from oil prices next week. A hawkish FOMC with further global commodity demand weakness could push the CAD lower as there will be very limited economic indicator releases next week that could make the case for a strong loonie.

CAD events to watch this week:

Friday, July 31
8:30am CAD GDP m/m

*All times EDT
For a complete list of scheduled events in the forex market visit the MarketPulse Economic Calendar

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza