The Canadian dollar is poised to weaken against the US dollar as oil prices saw a brief rally, bolstering the loonie despite subsequent declines. This rally follows supportive remarks by Powell, signaling a softer stance on inflation.
Canada, a net oil exporter, benefits from higher oil prices, which typically strengthen its currency. On Tuesday, oil briefly surged to a two-month high, boosting the Canadian dollar against its US counterpart. Despite oil price retracements, the loonie maintained its gains.
However, Canadian economic data showed the manufacturing sector remained in contraction in June, with the manufacturing PMI unchanged at 49.3 from the previous month. Despite this, recent GDP and inflation data surpassed expectations, reducing the likelihood of Bank of Canada (BoC) rate cuts in July, which dropped below 50%. Yet, this outlook remains subject to change pending further economic indicators.
Conversely, the US dollar softened after Powell’s recent comments, where he noted progress on inflation and hinted at potential rate cuts later in the year. Although specifics on timing and number of cuts were not provided, Powell’s confidence in inflation moderation fueled expectations for rate reductions.
Additionally, US job vacancies surged to 8.140 million, exceeding expectations of 7.910 million openings, indicating robust labor market conditions.