Oil continues to move higher which is great news for the loonie
USD: The lower-than-expected supply increase from OPEC+ producers has pushed oil prices to multi-year highs. This is not only positive for the CAD but given that the rising oil price and associated base effects have contributed heavily to the rise in headline CPI inflation so far this year, higher oil prices and the further spillover into CPIs point to even higher prospects for tighter monetary policy. With the Fed looking through the high prices and not planning to react on the interest rate side any time soon this should continue to translate into softer USD.
CAD: The CAD is firm but continues to hold in a tight range above the 1.20 level. Background factors—crude oil and spreads—remain CAD supportive. The Bloomberg Commodity Index has advanced sharply over the past three trading sessions to near the early May (6-year) high. Markets are now looking to Friday’s US and CAD job numbers for further direction in the short term.
EUR: EZ May CPI moved to the 2% level yesterday. Judging by the latest comments from ECB officials, any imminent shift away from the ultra-accommodative monetary stance seems unlikely, with QE tapering unlikely to be on the table in the June meeting. Still, as long as the Fed continues to look through the high price pressures too, this should be in relative terms more detrimental for the USD, particularly when the dollar is set to benefit less than the euro from rebounding global growth.
GBP: Concerns about the spread of the Indian Covid variant and the risks to the 21st June full reopening plans have yet again weighed on GBP. But with the EUR/USD on a general rise, this should partly outweigh the downside risk to GBP/USD, with the 1.4100 level providing strong support.
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