- USD/CAD dropped below 1.2650 to hit fresh monthly lows on Monday.
- The loonie is being boosted by risk on, strength in crude oil prices and strong Canadian data.
The loonie is putting in a strong performance on the first trading day of the week, boosted by strong crude oil prices, a broadly risk on market tone and following strong Canadian data, despite the fact that Canadian markets are shut for the day on account of Family Day holidays. USD/CAD has dropped below the 1.2650 mark in recent trade, fresh lows for the month, with the bears now eyeing a move towards last month’s lows just below the 1.2600 level. As of right now, the pair trades with losses of about 0.3% or around 40 pips on the day.
Risk-on
The risk appetite and crude oil sensitive Canadian dollar is receiving tailwinds from upside being seen across global equity and crude oil markets. North American equity markets are closed for the day (Family Day holiday in Canada and Presidents’ Day in the US), but strength is being seen in US equity index futures in line with strength in European and global equity markets. Risk appetite has been given a boost by positive news out of the UK as the country hits a key vaccination milestone (15M of its most vulnerable people have been jabbed), which opens the door for economic reopening. In the US, the country’s vaccination programme is ramping up and the seven-day moving average of new infections being reported each day has dropped below 100K for the first time since last November.
Crude oil rallies
This positive news is boosting both equities and crude oil, but the latter is also receiving some support from supply-side developments. Adverse weather events in the US mainland are affecting crude oil production; Arctic temperatures have brought snow, ice and freezing temperatures all the way down to the Gulf of Mexico. Texas declared a state of disaster and Oklahoma declared a weather disaster emergency. Crude oil production has been impacted.
Meanwhile, an earthquake in Japan has taken out a fifth of the country’s refining capacity, the Russian Energy Minister was sounding bullish on the oil market’s recovery path and Iraq is reportedly said to be thinking about building new crude oil storage facilities in China and Pakistan to drive sales in Asia.
All of the above has added to the upside in crude oil markets on the first trading day of the week; WTI surged above $60 and Brent above $63.00. Needless to say, both hit fresh 13-month highs. Crude oil is one of Canada’s most important exports, hence why stronger prices are helping the loonie.
Canadian Data
Canadian data has also been stronger than expected on Monday; annualised Housing Starts rose to 282.4K in January from 228.3K in December 2020. Meanwhile, Manufacturing Sales saw 0.9% MoM growth in December 2020, above expectations for a growth rate of 0.6% and more than making up for the 0.6% drop in sales seen in November 2020.
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