Brent Reclaims $100 as USD and Loonie Rise Together
The price of Brent oil has made a significant recovery after falling into the low $98s on Tuesday. Traders initially priced in a faster reopening of the Strait of Hormuz, but as focus shifted to how long any agreement would take to restore actual oil flows, Brent reclaimed its position above $100.
This reversal has led to a strengthening of the Canadian dollar (CAD) against other major currencies, consistent with the usual Canadian terms-of-trade channel. However, despite CAD's gain, it is not beating the US dollar (USD), as USD/CAD edged higher due to the strong USD backdrop.
The extra tailwind for the Dollar comes from the Federal Reserve's hawkish commentary this week. Fed officials have emphasized persistent supply shocks and overheating risks, with some calling for a more restrictive federal funds rate to ensure inflation returns durably to 2%.