Why the Canadian dollar has soared by more than 4% in the past month
The Canadian Dollar (CAD) has been soaring in the recent weeks. Over the past one month, the currency has gained by 4.34% against the USD and 1.28% against the Euro. Here is a look at some of the aspects that have favored the CAD.
Soaring crude oil prices
Canada is the 4th largest crude oil exporter in the world after Saudi Arabia, Russia, and Iraq. Notably, the recent weeks have seen the price of crude oil increase consistently. This price upsurge comes as more countries reopen their economies and businesses resume their operations.
Additionally, oil supply has decreased following the OPEC+ deal that was signed in May. According to this agreement, the oil producers will reduce production by 9.7 million barrels in a day; an output cut that is termed as the largest in history. At the same time, US producers have been closing their well rigs due to financial constraints. According to Baker Hughes, the number of active rigs reduced by 15 during the past week. The decline of the oil-rig count is now in its 12th week.
Decline of Coronavirus Cases
Several countries across the globe have recorded a decline in the number of Covid-19 cases. Canada is one such nation. According to Worldometer, the number of daily cases reported yesterday was 675. That was below the peak of more than 2745 in March. Similarly, the number of active cases has flattened as shown below. With this reduction, businesses are resuming operations and the economy is coming back.
Weak US Dollar
At the peak of the Coronavirus pandemic, the USD rose significantly as the demand for this currency increased. Businesses and individuals alike strived to acquire the USD as a way of protecting their funds from the forecasted tough times since the US currency and economy are perceived to be stable entities.
This trend has been shifting in the past weeks. Indeed, the USD has weakened against most currencies. The USD dollar index (DXY) is trading at $97.32; its lowest figure since March 12. The dollar index measures the performance of the USD against a basket of currencies.
This is largely because businesses and investors are now returning to their local currencies following the continued reopening of economies. The chart below shows the performance of the US dollar index.
You can read our reasons why the US dollar is falling here.
Final thoughts
The Canadian dollar has been soaring. Other currencies like the Australian dollar, euro, British pound, and Norwegian krone have been rising. While the trend could continue, there is also a possibility of a reversal happening. This could happen if OPEC members fail to reach a deal in the upcoming meeting and if the US dollar recovers.
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