Oil Fuels CAD Advance

The Canadian currency will benefit from record crude oil prices, but there is an increasing threat of a violent correction

The Canadian dollar has remained strong over the past 24 hours with a further test of levels beyond 0.99 against the US currency, although, like the Australian dollar, there were some initial difficulties in extending gains.

Crude oil prices remained a key influence as prices pushed to fresh record highs and prices advanced further in Europe on Wednesday to a record level above US$130 per barrel.

The inflation data was watched closely on Wednesday and headline prices rose by 0.8% compared with expectations of a 0.4% increase. The higher than expected reading for core inflation will make it more difficult for the Bank of Canada to justify a further near-term cut in interest rates which will provide further near-term Canadian dollar support. Following the data, there was a renewed Canadian dollar advance to 0.9830 against the US currency.

Overall, the currency is likely to remain strong in the short term, but there is still a high risk of a corrective Canadian dollar move weaker with volatility liable to increase in tandem with changes in oil prices.

Investica
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