Canadian Dollar Strengthens on Oil Rally, Manufacturing Rebound

The Canadian dollar is kicking off 2021 with a bang against the US dollar as the currency broke the 1.27 mark on Tuesday. The loonie is mostly benefiting from rallying energy prices and a recovery in the manufacturing sector. How much room for growth will there be this year? Should the greenback maintain its downward trend and oil prices extend their gains into 2021, the loonie could have a bullish year.

In December, the IHS Markit manufacturing purchasing managers’ index (PMI) jumped to 57.9, up from 55.8 in November — anything above 50 indicates expansion. This represented the sixth consecutive month that the manufacturing PMI has expanded
The industry reported growth in overall business conditions, buoyed by output, new orders, and employment. Input prices climbed to a more than two-year high, while business sentiment increased to a three-month high.
According to Statistics Canada, producer prices fell in November as they slipped 0.6%, down from -0.3% in the previous month. At an annualized rate, the producer price index (PPI) was unchanged in November.
Raw material prices gained 0.6% in November, up from 0.4% in October. Year-over-year, raw material prices tumbled 1.7%, down from -0.9% in October.
Energy prices were soaring on Tuesday after it was reported that the Organization of the Petroleum Exporting Countries (OPEC) and its allies, OPEC+, would not be raising production levels in February. Despite some initial pushback from Russia, Moscow agreed with the cartel and its broader allies.
Crude prices also benefited from Iran-South Korea tensions after Tehran forces seized a South Korean oil tanker in the Strait of Hormuz.
February West Texas Intermediate (WTI) crude oil futures rallied $2.01, or 4.22%, to $49.63 per barrel. February natural gas futures tacked on $0.112, or 4.37%, to $2.673 per million British thermal units (btu).
Since Canada maintains a current account deficit, it relies on exports to grow its economy. Oil and gas remain the country’s top exports, so any significant change in prices – high or low – can impact the loonie and the broader economy.
The bond market was mostly in the green on Tuesday, with the benchmark 10-year bond rising 0.033% to 0.71%. The one-year note dipped 0.02% to 0.14%, while the 30-year bond picked up 0.05% to 1.276%.
The USD/CAD currency pair tumbled 0.7% to 1.2688, from an opening of 1.2777, at 16:14 GMT on Tuesday. The EUR/CAD fell 0.25% to 1.5613, from an opening of 1.5653.
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Original from: www.earnforex.com