The Canadian dollar strengthened against the majority of its currency counterparts including the pound and euro yesterday, after the price of oil rose significantly, along with increasing hopes of an agreement being reached between the US and China this week.

Currency Pair% Change in 1 monthDifference on £200,000
GBPCAD3.8%$12,750
Trade Deficit Narrows, but misses predictions

The Canadian dollar is a commodity currency, and as such usually strengthens when the price of oil rises, due to this being its largest export. US Crude oil prices rose to $54.18 per barrel this week, which was partly due to a decline in oil inventories, combined with news that Saudi Arabia (the largest exporter globally) would cut its production and exporting.

US President Donald Trump told reporters yesterday that positive talks were ongoing between his negotiators and those in Beijing this week.

There is also speculation of extending the 90 day pause which was implemented in order to reach an agreement before 1st March where $200bn worth of Chinese goods would be taxed at 25% instead of the current 10%.

An extension wouldn’t be the ideal solution, however this would allow more time for the two leaders to come to an agreement, and avoid damaging economies such as Canada's, which would be badly hit if tariffs rose to 25%.

I would expect that if an agreement is reached between the US and China, the Canadian Dollar will likely strengthen significantly after much of the uncertainty is removed. Clients looking to sell Canadian dollars in the near future may look to do so sooner rather than later, in case further positive speculation mounts making foreign currency more expensive to buy.

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