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USD/CAD: Rising oil prices, mixed US data lift Canadian dollar

H.S. Borji
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USD/CAD: Rising oil prices, mixed US data lift Canadian dollar

The Canadian dollar advanced against its US counterpart Wednesday, as rising oil prices and shaky US data lifted the loonie ahead of the Federal Reserve rate announcement.

The Canadian dollar rose for a second consecutive day, advancing 0.35 percent to 0.8984 US. The loonie has rallied more than 1 percent over the last two days, taking advantage of a weaker US currency.

The USDCAD pair was at 1.1133. The pair is testing initial support at 1.1134. A deeper fall below that level would expose the 1.1103 support region. On the upside, resistance is ascending from 1.1226.

Energy futures advanced briskly Wednesday, supporting the commodity-driven Canadian dollar. Brent crude for December delivery rose 1.1 percent to $86.98 a barrel. The price of West Texas intermediate futures rose 1 percent to $82.21 a barrel.

In economic data, Canadian commodity inflation declined in September, Statistics Canada reported today in Ottawa. Industrial product prices declined 0.4 percent in September, mainly due to lower energy and petroleum products. That followed an increase of 0.3 percent in August.

Among the 21 major commodity groups captured in the industrial product price index, 13 were up, seven were down and one was unchanged, official data showed.

The raw materials price index, which measures price changes of raw materials paid by domestic manufacturers, declined 1.8 percent in September following a 2.2 percent dip a month earlier.

Canada has no major releases scheduled in the remainder of the week, as the markets zero in on a flurry of US data and a potentially landmark rate announcement from the Federal Reserve.

The Fed is expected to pare asset purchases by $15 billion today, thereby putting an end to its massive quantitative easing campaign. The central bank has been unwinding QE3 in measured steps all year in response to an improving US economy. The Federal Open Market Committee is not expect to raise interest rates until sometime next year.

The Bank of Canada has taken a similar approach to interest rates, as policymakers continue to find plenty of justification for keeping rates low. Most economists believe the BOC’s next move will be a rate increase rather than a reduction. The BOC is expected to tread cautiously over the next two years as the Canadian economy hits its stride.

According to BOC Governor Stephen Poloz, Canada’s economy will operate at below capacity until the middle of 2016.

A weaker Canadian dollar has helped rev up the country’s struggling export sector. Canadian exports surged 4.2 percent in the second quarter, after declining in the January to March period. Real gross domestic product rose 0.8 percent in the second quarter, following a 0.2 percent gain in the first quarter.

Canada’s GDP is expected to grow 2.3 percent this year, according to the International Monetary Fund. Growth is expected to average 2.4 percent in 2015. By contrast, the US economy is expected to grow 2.2 percent this year and 3.1 percent in 2015.

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