The Canadian dollar is sinking against its G10 currency counterparts on Tuesday as the rally in equities and crude oil stalls. The loonie has made considerable gains against the US dollar and other rivals over the last month, driven by the broader market spike that has sent traders out of safe-haven assets. Is the loonie’s rally over, or does it still have more room for growth?
North American markets took a breather after six consecutive sessions of gains. Trader ostensibly took some profits, triggering a pause in the noteworthy increase among the leading stock indexes. The overall investment sentiment on the Toronto and New York Stock Exchanges remain bullish, and Tuesday’s dip could just be a blip on the radar.
Crude oil prices also reversed its historic run over the last six weeks. The decline has been driven primarily by the Organization of the Petroleum Exporting Countries (OPEC) and fears that the cartel and its allies (OPEC+) could restart operations once its current agreement expires at the end of July. Despite the group agreeing to extend its production cuts of 9.7 million barrels per day (bpd), it is unclear if oil-rich nations could maintain these lower output levels for the remainder of the year.
Leaders are concerned about two things. The first is that American companies could ramp up production once prices top the profitable range of $40 to $50 per barrel, eating away at these countries’ market share. The second is that too many members may fail to reach their quotas, much like Iraq, which pledged to make up for the shortfall in the coming months.
July West Texas Intermediate (WTI) crude oil futures tumbled $0.26, or 0.68%, to $37.93 per barrel on the New York Mercantile Exchange. Brent, the international benchmark for oil prices, is also slumping as August contracts dropped $0.43, or 1.05%, to $40.37 a barrel.
Oil remains Canada’s biggest export, so any significant changes in prices – large or small – can impact the Canadian economy.
The Canadian bond market was in the red on Tuesday as investors look to the Federal Reserve’s two-day policy meeting. The benchmark 10-year bond yield decreased 3.3 basis points to 0.645%.
On Monday, it was reported that housing starts surged to 193,500 in May, up from 166,400 in April.
The USD/CAD currency pair rose 0.24% to 1.3416, from an opening of 1.3383, at 17:30 GMT on Tuesday. The EUR/CAD advanced 0.59% to 1.5204, from an opening of 1.5118.