USD/CAD is trading around 1.37 during the Asian hours on Monday and is extending its gains for the second successive session. The pair remains stronger as the commodity-linked Canadian dollar (CAD) remains under pressure due to declining oil prices.
Although Canada is the largest crude oil supplier to the United States (US), the price of West Texas Intermediate (WTI) crude fell over 5% after four consecutive days of decline and is currently trading just above $62.00 per barrel.
Crude oil prices are now trending lower as investors watch for any new developments in the ongoing negotiations between the US and Iran that might reduce the premiums on geopolitical risks. President Donald Trump spoke this weekend that the US would be able to reach a deal with Iran, even after Iran’s Supreme Leader Ayatollah Khamenei warned that US military action against Iran would likely lead to a regional war.
The USD/CAD pair may further strengthen as the US Dollar would receive increasing support from the rising cautious sentiments around the Federal Reserve policy outlook.
There is a great deal of concern about the upcoming Federal Reserve (Fed) meeting and its potential impact on all markets. While President Trump appointed Former Federal Reserve Governor Kevin Warsh as a Fed Chair, market participants see his appointment as a signal of a more disciplined and cautious monetary policy. Therefore, it is not surprising to see the US dollar (USD) strengthen against the Canadian dollar (CAD).
Read: Gold Tumbles as Kevin Warsh Named Fed Chair
Furthermore, since Fed officials recently stated that they are unwilling to reduce interest rates, at this time, it is not uncommon for the USD/CAD exchange rate to continue to strengthen. In a recent interview, St. Louis Federal Reserve President James Bullard stated that the Fed’s monetary policy is currently considered neutral and that he believes further cuts are not warranted. In contrast, Atlanta Fed President Raphael Bostic indicated that interest rates should remain somewhat restrictive.
Moreover, with improved risk appetite due to the agreement reached by the US Senate to move forward with a government funding package and avoid a government shutdown (according to reports from Politico), the Greenback also received additional support.
