Canadian Dollar Rises Along With Oil Price, Bolstered by Economic Growth

The Canadian dollar surges, and according to figures released on Tuesday, the Canadian economy grew at a rate of 5.6 percent in the first quarter, slightly below expectations. The data does not impact the National Bank of Canada’s forecast for strong growth in the second half of 2021, according to economists.

Because of the reintroduction of limitations in April and May, the economy is likely to grow slowly throughout the quarter (we see a 0.5 percent gain in Q2, with risk for a flat or even negative reading). The BoC is likely to look past the fall in Q2 as vaccinations have increased, implying that the recovery will resume in the second half of this year.

The Canadian dollar is higher today, partially due to strong GDP growth figures and partly due to an upside breakout in oil prices. The Australian Dollar is the second most powerful currency, although the US Dollar is also recovering. Sterling, on the other hand, erased earlier gains after failing to hold above a crucial resistance level against the dollar. Following a subsequent selloff, the Pound is now the weakest currency today, followed by the Kiwi.

The Canadian Dollar Benefits From Higher Oil Prices

The price of a barrel of West Texas Intermediate is at $68.55, its highest level since October 2018, up 2.5 percent daily, helping the commodity-sensitive loonie outperform its peers.

WTI crude oil’s break of the 67.83 resistance suggests a continuation of the uptrend. Strong support from the rising moving averages confirms near-term bullishness. The psychological level of 70 is the next target, followed by the long-term resistance of 76.75.

Despite this, Canada’s economy is in an advantageous position relative to the rest of the world. During the quarter, Canada had the second-best performance among G-7 countries, putting its economy within 1.7 percent of its pre-pandemic output (Q4 2019), which was also the second-best print.

The USD/CAD pair is currently trading at 1.2050, down 0.07 percent on the day, and is within striking distance of the multi-year lows established on May 18 at 1.2011.