The Canadian dollar is expected to end its six-day losing streak this week as investors react to the Federal Reserve’s interest rate decision on Wednesday, July 30th. The Fed was widely expected to cut interest rates by 25 basis points to boost the US economy in the face of strong headwinds affecting the global economy.
Canada Stays Put
This move is in stark contrast to the Bank of Canada, which diverged from other major central banks earlier in July by choosing to maintain the interest rate. Stephen S. Poloz, the head of the BOC, stated that the bank had no immediate intention of easing monetary policy and left rates unchanged at 1.75%. As a result, the Federal Reserve’s rate cut will cause the US dollar to weaken against the Canadian dollar.
Rising Oil Prices Add to the Mix
The impact of this move could be further amplified by rising oil prices, which continue to strengthen due to increased tensions in the Middle East. The seizure of a British registered oil tanker by Iran poses a threat to oil supplies in the region which could put pressure on oil prices in the coming weeks.
Since oil is one of Canada’s leading exports, the Canadian dollar is heavily influenced by the short-term spot price of oil.
Last week, WTI crude oil held support at $55.71 before climbing to resistance at $57.15. Should that resistance level break, this could be a perfect storm for traders looking to profit from short-term moves. On Tuesday, July 30th, the USD/CAD was holding resistance at 1.31757.
