The US dollar continues to perform strongly in the FX markets, riding high on the anticipated interest hikes following Janet Yellen’s announcement earlier this month. Unfortunately for the Canadian dollar, the anticipated raised interest rates for the US dollar mean the Canadian dollar is losing value against the U.S. dollar.
The Canadian dollar is partly being dragged down by the price of oil, which hit a 3 month low this week. The price per barrel for oil slid down 1.4% to $47.72, and marked the seventh day of declines in a row for the commodity. Oil prices were affected by an OPEC report of a rise in global crude stocks and a surprising rise in output by Saudi Arabia, despite an effort by the country to slow oil production.
Canada’s currency is closely tied to the price of oil in part because a large percentage of US dollars they receive are from oil purchases. If there is less of a demand for oil, the cost of oil is lowered and the Canadian dollar takes a hit. The Canadian dollar is also largely influenced by the strength of the U.S. dollar.
Pound Sterling and Euro
This week pound sterling reached near eight-week lows as investors exercise caution before the triggering of Article 50. Sterling even weakened against the euro, despite the euro’s weak performance over the last few months amidst political uncertainty. Sterling’s drop against the euro was incited in part by Members of Parliament voting against amendments made by the House of Lords to Article 50. This was a surprise, as Article 50 originally passed through the Commons when it was unaltered.
The uncertainty caused by this vote trickled down to the value of GBP, further weakening the pound and slowing down its performance in the market. Euro may have risen slightly against sterling, but investors are still exercising caution with the official currency of the Eurozone. Investors are closely watching tomorrow’s Dutch election.
Should Geert Wilders, the far right populist candidate, win the election, the euro may take a hit. A far right populist win could result in yet another country leaving the European Union, resulting in more economic uncertainty ahead. As always, only time can tell what will happen in the FX markets in the days to come.