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The Canadian dollar dropped against the U.S. dollar to a 14-month low on Tuesday as the lower oil prices earlier this week added to the downside for the currency of Canada, whose key export commodity is oil.
Oil prices fell on Monday and Tuesday as hedge funds and money managers started to cut bullish positions in a reaction to quickly growing supply. At 3:40pm EST on Tuesday, WTI was trading down over 2 percent on the day, well below the US$50 mark at US$47.59. Brent Crude was trading at US$50.38. Brent Crude hit a low early on Tuesday of US$50.14—the lowest point this year.
Brent prices have now erased all the price gains since OPEC agreed at end-November to a collective production cut in an effort to help draw down bloated global inventories and prop up the price of oil.
According to Reuters data, at 4:00pm EST on Tuesday, the Canadian dollar was trading at US$0.7291, down from the US$0.7309 at close on Monday.
On Tuesday, the American Petroleum Institute (API) reported a healthy draw of 4.2 million barrels in United States crude oil inventories for the week ending April 28, compared to analyst expectations that markets would see a bit of relief with a crude oil draw of 2.2 million barrels.
Early on Wednesday, oil prices were ticking higher, with the EIA inventory report expected later in the day.
Related: Russia Exceeds Assigned Quota For Production Cut
While the inventory reports are expected to influence the oil prices, the biggest currency market mover this week will be the Fed interest rate decision on Wednesday. The Fed is expected to hold, but may point to future policies, or a possible increase in June, in its statement, analysts reckon.
For the loonie, apart from oil prices, the currency movers are the future of the North American Free Trade Agreement (NAFTA), concerns over the Canadian mortgage market, and expectations that the Bank of Canada will likely not raise interest rates this year.
By Tsvetana Paraskova for Oilprice.com
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Tsvetana is a writer for Oilprice.com with over a decade of experience writing for news outlets such as iNVEZZ and SeeNews.