CAD Falls as Oil Prices Drop and BoC Maintains Dovish Stance
The Canadian Dollar (CAD) dipped against the US Dollar (USD) on Tuesday, influenced by falling oil prices and the Bank of Canada's dovish outlook. The USD/CAD exchange rate gained 0.27% to around 1.4070 at the time of writing, supported by the weakness in the CAD.
West Texas Intermediate (WTI) US Oil fell 0.46% on Tuesday to around $91.20, which acts as a headwind for the Canadian Dollar, as Canada is a major oil producer and exporter. The relationship between energy prices and the Canadian currency helps keep USD/CAD tilted to the upside.
The decline in oil prices was partially offset by improving risk appetite on the Loonie, as fresh prospects for negotiations over the Strait of Hormuz ease geopolitical concerns. However, US President Trump maintained a firm stance toward Tehran, calling on countries to maintain pressure on Iran and saying that 'Tehran will never obtain a nuclear weapon.'
On the policy side, National Bank of Canada highlighted that domestic conditions argue for patience from the Bank of Canada (BoC), stating that 'in Canada, we've pulled tightening closer on our expected timeline, but still expect the BoC to be sidelined in October as economic momentum is threatened and slack remains.'