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The USD/CAD Exchange Rate Advances Towards 1.2600 Due to Low Oil Prices

Larissa Barlow

Apr 11, 2022 09:55

  • The USD/CAD is edging closer to last week's high of 1.2620 as bears target the oil sector.

  • Reduced supply concerns and declining demand in China have resulted in a decline in oil prices.

  • The DXY is predicted to move in an unpredictable manner ahead of the US CPI.

 

The USD/CAD pair is blowing out of its consolidation range, which was 1.2562-1.2578 in the early Asian session due to plummeting oil prices and a jump in the US dollar index (DXY) following a bearish initial breach below 100.00.

 

Oil prices are extending last week's losses as supply fears ease and demand declines as a result of China's harsh limitations on Covid-19. The International Energy Agency (IEA) intends to release 60 million barrels from its strategic stockpiles over the next six months, implying an additional two million barrel release. Earlier this month, US Vice President Joe Biden said an additional one million barrels of oil would be released from the US Strategic Petroleum Reserve for a six-month period (SPR). Reduced supply concerns combined with increasing oil production by countries may result in a correction of oil prices. However, it would be fascinating to see how much additional oil is released to compensate for the shortage in Russian oil caused by Western rivals' harsh sanctions.

 

On the demand side, China's government has put Shanghai, the country's most populous city, under its 'zero tolerance' category in order to control the Covid-19's escalation. China is the world's largest importer of oil, and any decline in demand from the colossus will wreak havoc on oil prices.

 

Reduced supply concerns and declining demand will continue to support the greenback against the loonie in the future. Canada, as the largest oil exporter to the US, will see a decline in inflows as oil prices fall.

 

The DXY is likely to exhibit significant swings ahead of Tuesday's release of US inflation data. While the Bank of Canada's (BOC) interest rate decision on Wednesday is critical.

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