Canadian Dollar Surged Despite Troubles in the Oil Markets

Ibeth Rivero

The bank's forecast is based on the assumption that the Canadian economy won't suffer the consequences of a second wave of the coronavirus pandemic, which could end up being an overoptimistic bet.

Last week the Canadian dollar went up by 0.12 percent against the greenback, as the currency suffered from volatility as of lately, in light of the troubles that the oil markets are currently facing.

Crude OilLast week the Oil markets mainly went down due to the increasing doubts there are about the future of energy demand, as well as the fact that the coronavirus outbreak continues advancing around the world.

Brent oil futures closed the week on the negative territory, dropping 0.23 percent and closing at the 43.14 level, while the West Texas Intermediate crude oil futures gained 0.10 percent, closing at the 40.59 level. The oil markets were mainly affected by the uncertainty regarding the future of the Oil demand, as important market actors gave contradictory assessments concerning this topic.

On the one hand, the OPEC+ foresees a significant demand uptick which will hit the pre-coronavirus levels by next year. This view was reinforced by the Russian energy minister Alexander Novak, who also foresees a significant recovery by next month.  On the other hand, Shell’s chief executive Ben van Beurden told an interviewer that he doesn't expect a V-shaped recovery in the market.

 

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The coronavirus pandemic continues advancing around the world, infecting around 14,305,707 individuals and killing 601,654 of them. The United States leads in the number of infections, with 3,799,780 confirmed infections as well as a death toll of 142,500. Some western countries are already reporting new outbreaks, which is spreading the fears for a second wave.

In Canada itself, there are around 109,835 infected individuals, as well as a death toll of 8,841, while cities like Quebec, Alberta, and Saskatchewan are reporting a spike in infections. Despite the significant boost in the recovery numbers, the Canadian government recently expressed its concern for the recent surge in cases, attributing it to the fact that people are frequenting bars, clubs, and restaurants.

“When we examine recent trends in case reporting, there is some cause for concern. After a period of steady decline, daily case counts have started to rise,” said the deputy chief public health officer Howard Njoo during a briefing.

Just like the rest of the developed world, the Canadian government is doing whatever is on its reach to aid the Canadian economy, which has been hit significantly by the sanitary crisis. On Thursday, Prime Minister Justin Trudeau announced that the government will provide 19 billion dollars to the provinces, mainly to bail out municipal governments and to help them fund child care programs, personal protective equipment, and contact tracing.

The bank of Canada decided to leave the interest rates unchanged at 0.25 percent, a move that was heavily expected by the analysts. The bank's governor Tiff Macklem announced that the interest rates are probably going to stay low for a long time.

The bank also released its quarterly Monetary Policy Report. Regarding the Canadian economic performance, the bank foresees that the economy will shrink by 7.8 percent, and will increase 5.1 percent in 2021 and 3.7 percent in 2022. The bank also estimated that the lockdown caused the GDP to shrink by 15 percent in the second quarter.

The bank's forecast is based on the assumption that the Canadian economy won't suffer the consequences of a second wave of the coronavirus pandemic, which could end up being an overoptimistic bet.

In terms of the economic calendar, Statistics Canada released the manufacturing sales figure, which stood at 10.7 percent in May (month-to-month) after dropping 27.9 percent on the previous month. On Friday, they also released May's Wholesale Sales figure, which increased by 5.7 percent (month-to-month), after going down by 21.4 percent on the previous month, the analysts expected an 8.5 percent surge.

Next week Statistics Canada will release the Retail Sales figure as well as the New Housing Price Index. The Bank of Canada is publishing the Consumer Price Index figures as well.

Ibeth Rivero

Ibeth contributes daily market commentary in both English and Spanish (both of which she speaks fluently) and she also manages the DailyForex mobile app to ensure that traders around the world are getting important market updates in real time.

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