Energy crisis hitting Europe and China takes center stage

Today's expected range for the Canadian Dollar against the major currencies:

US Dollar             1.2600-1.2700

Euro                     1.4750-1.4850

Sterling                1.7150-1.7250

The US Dollar Index is stronger this morning as the energy crisis hitting Europe and China takes center stage. Supply chain chaos in England brought on by Brexit but enhanced by the pandemic has pushed the British Pound much lower, demand for all energy products in the UK has risen as the economy recovers but the supply chain has not been able to keep up. The price of a barrel of Brent oil (the European measure of the oil price) has now risen to $80 which is close to the year high set earlier and may force the Bank of England to increase interest rates before the end of the year.

In China the government has introduced electricity cutbacks which will start to show up in their growth numbers going forward and help to drag the Asian stock markets lower

In the US the Senate has voted down a Democratic plan to suspend the debt ceiling which now puts the US Government in front of another shutdown and may force the US treasury department to default on some bond payments.

In the US, interest rates are moving higher as the 10-year treasury bond has moved back above the 1.5% level. Given that this type of return is getting more difficult to achieve in the stock market, investors will be more attracted to buy US bonds thus putting pressure on the US Dollar to rise.

The Canadian Dollar has been able to take advantage of this jump in the oil price as a barrel of West Texas Intermediate oil has jumped to $76, demand for energy products in North America remains strong. USD.CAD dipped to trade at the 1.2600 level (0.7936) overnight before pulling back to open the morning at 1.2650 (0.7905), the Loonie will trade with increased volatility going forward as long as there is uncertainty in the energy market. For the most part we do not have the energy supply distribution problems here in North America but that could change very quickly if demand continues to outstrip supply.