USD/CAD: Here’s why the loonie jumped to an eight-week high

By: Crispus Nyaga
Crispus Nyaga
Crispus is an active trader, where he is followed and copied at Capital.com. He lives in Nairobi with his… read more.
on Jan 13, 2022
  • The USD/CAD price tumbled to the lowest level in eight weeks.
  • The decline accelerated after the latest US inflation data.
  • The rising crude oil prices also contributed.

The USD/CAD price declined to the lowest level since November 16th as investors reacted to the latest American consumer inflation data and the rising crude oil prices. The pair is trading at 1.2500, which is about 3.60% below the highest level in December last year.

US dollar weakness

The biggest catalyst for the USD/CAD performance is the overall dollar weakness. The US dollar index declined by over 0.60% in the overnight session after the latest inflation data.

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Numbers by the Bureau of Labor Statistics (BLS) showed that inflation jumped by 7% in December as the supply chain crisis continued.

Excluding the volatile food and energy prices, prices jumped by 5.4%. These numbers were the highest they have been since 1982.

While the inflation trend is worrisome, a closer look at shows that inflation is peaking. This is evidenced by the fact that the Chinese inflation declined in December. 

The US inflation data came a few days after the latest US non-farm jobs numbers. The data revealed that the American labor market continued to tighten in December as the economy reopened. The unemployment rate declined to 3.9% during the month.

Therefore, with the unemployment rate falling and inflation rising, analysts believe that the Federal Reserve will embrace a more combative policy this year.

Oil prices

The USD/CAD pair also declined sharply because of the rising crude oil prices. Brent, the global benchmark, has jumped to $85 while the West Texas Intermediate (WTI) rose to $82.68. These prices are slightly below their highest levels in 2021.

Crude oil prices matter for the Canadian dollar because of the volume of oil that Canada sells internationally since it is the fourth-biggest producer. 

The jump in prices happened as investors priced in more global demand for oil as the economy reopens. Also, the prices jumped after the bullish oil inventories data from the United States. Data by the Energy Information Administration (EIA) showed that inventories declined by over 4 million last week. That was the 7th straight month in which inventories have declined.

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