Canadian Dollar Struggles as Oil Supply Pressures Prices
The Canadian Dollar (CAD) is showing some strength against the US Dollar (USD) on Tuesday, pushing the USD/CAD pair down by 0.15% to around 1.4240. This retreat follows a recent peak near 1.4300, but the CAD remains under pressure due to falling oil prices. The decline in oil prices is linked to recovering supply from the Middle East, with crude shipments reaching 17.5 million barrels per day, about 98% of pre-war levels. Additionally, refined product flows have rebounded to 3 million barrels per day, further weighing on prices.
The supply increase comes after the Group of Seven (G7) nations agreed to release 100 million barrels of diesel and crude from emergency reserves. Kuwait and Saudi Arabia have also reported significant recovery in their oil production and adjusted selling prices, respectively. These factors are keeping oil prices weak, which negatively impacts the Canadian Dollar, as Canada is a major oil exporter.
Despite the oil-related pressure, the USD/CAD pair’s decline on Tuesday suggests that the weakness in oil prices is not strong enough to extend the pair’s recent rally. The US employment figures, as reported by Automatic Data Processing (ADP), show a modest acceleration in hiring, which could provide some support to the US Dollar. However, investors are still assessing the Federal Reserve’s monetary policy outlook following recent disappointing employment figures.
Looking ahead, the Canadian labor market data, expected to be released on Friday, will be a key test for the domestic outlook. Analysts predict a weak jobs report, with only 5,000 jobs added after a loss of 41,700 jobs in August. The unemployment rate is expected to rise to 6.5%, indicating fragile hiring conditions. Against this backdrop, Brown Brothers Harriman’s Elias Haddad argues that the Bank of Canada’s (BoC) rate hike expectations appear too aggressive, leaving the Canadian Dollar vulnerable to a dovish repricing.