The Canadian dollar continues to be the most bullish currency among all G10 countries. The month of May marked the fourth straight monthly win for the loonie against the U.S. dollar. The Canadian dollar has gained approximately 1.8% since the start of the month and has rallied 6.0% since the start of February.
The outlook for the loonie remains robust amid a broader commodities boom, with grains and copper at record levels. Other commodities, including lumber and oil have also seen their prices soar over the months. Since the broader stock markets bottomed last spring, copper prices have more than doubled, lumber prices are up 275%, corn has jumped 85%, and canola prices are up more than 100%.
Meanwhile, crude oil prices are up more than 80% over the last 12 months. The price of oil, which remains one of Canada’s biggest exports, is expected to remain strong as demand for fuel grows into the next quarter. OPEC+ will be meeting soon as well, and how those oil producing nations respond to the current environment will also dictate the near-term price of oil.
The Canadian dollar is often referred to as a commodity currency since the country’s economy is highly dependent on the commodity trade. And with many commodities at record levels, it’s not a surprise to see the Canadian dollar trading as strongly as it is.
Key drivers supporting these strong commodities prices should push demand even higher over the coming quarter. This includes positive economic data, weakness in the U.S. dollar, strong continued demand from China, and tight global inventory levels.
One of the biggest drivers that will support strong commodities prices is the opening up of the global economies from the COVID-19 pandemic. Pent up demand and supply shortages will create a short-term bottle neck for raw materials like agricultural products (corn, sugar, soybeans etc.), materials (wood, concrete), metals (gold, silver, rare earth minerals), and energy (crude oil, etc.).
There is a downside of higher commodity prices, though; it helps drive inflation. We’re already seeing this in rising food prices. To combat inflation, central banks raise their key lending rates, which can be bad for stocks. Earlier this year we saw how rising rates negatively impacts the stock market.
Wall Street analysts expect commodity prices to cool, but not for a year or so, which suggest the Canadian dollar could continue its winning ways.
The Canadian dollar has been on a tear over the last four months thanks to many commodity prices being at, or near record levels. Strong demand for commodity prices are expected to continue as the global economy opens up following the coronavirus pandemic.
Everything is cyclical though, and the Canadian dollar and stock market will eventually take a breather. The trading professionals at Learn-To-Trade.com can show you how to spot market trends, read economic cycles, and become more confident, profitable traders.
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