- Canadian dollar rose against the USD after crude oil prices rose by more than 10%
- Crude oil price is rising as China ramps purchases and after Trump touted a deal between Saudi and Russia
- As the fourth oil producer, oil is important for the Canadian economy and is responsible for about 10% of GDP
The Canadian dollar rose against the US dollar as oil prices surged today. Brent, the global benchmark, rose by more than 10% while West Texas Intermediate (WTI) rose by more than 9%.
As of this writing, the USD/CAD pair is trading at 1.4133, which is 0.40% lower than where it opened yesterday. Still, Canadian dollar is down by more than 9% against the greenback this year.
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Canadian dollar performance against USD this year
Crude oil price pushes Canadian dollar higher
The price of crude oil rose sharply driven by four main catalysts. First, Donald Trump sent optimism in the sector when he said that Saudi Arabia and Russia were close to a deal. He did not offer any evidence and Russia has in the past denied that such talks were ongoing.
Second, it appears that China is taking advantage of the historic low prices to ramp-up its oil reserves. According to Bloomberg, Beijing is keen on taking advantage of these low prices to boost its reserves. It has requested government and corporates to increase its oil reserves in the next few days. The target is to increase its reserves to cover between 90 and 180 days. This is equal to about 900 million and 1.8 billion barrels of oil. A request by the Trump administration to boost reserves was rejected by Democrats last month,
Third, as we reported yesterday, Whiting, a large shale company in the US filed for bankruptcy. Analysts expect more American shale producers to follow suit as oil prices remain below production prices. As more shale companies exit the industry, supply of oil will be curtailed, which could boost oil prices.
Finally, Trump is scheduled to meet with CEOs of oil companies. The executives, especially Harold Hamm, could put pressure on Trump to intervene in the Saudi and Russia crisis.
Crude oil is important for Canada
Crude oil is important for the Canadian economy. Canada is the fourth oil exporting company after the US, Saudi Arabia, and Russia. According to estimates, the industry brings more than 10% to Canada’s GDP. This is a substantial figure. In fact, crude oil has a negative correlation with the USD/CAD pair as you can see below. This means that the likelihood of higher oil prices is beneficial to the Canadian dollar.
Crude oil correlation with USD/CAD
US employment data eyed
Meanwhile, the market is eying employment data from the US. Yesterday, data from ADP showed that private company axed more than 27k jobs. Today’s jobless claims data will be eyed since it will provide a signal of the state of the American economy is. The number will come a day before the US releases the official employment data for March. These numbers could affect the USD/CAD pair, which is attempting to pare back losses made in the first quarter.