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Loonie Falls as OPEC Deal Looks Unlikely, Outlook Sours for Oil Prices

Published September 27, 2016
  • USDCAD is testing a key area of resistance this morning defined by its 200 DMA at 1.3240 and recent range highs at 1.3255
  • Risk aversion ahead of yesterday's US Presidential debate drove broad US dollar strength last evening with USDCAD briefly touching the 1.3270 level as the candidates took the stage
  • As the most anticipated Presidential debate in quite some time began the greenback started to give up its gains as Hilary Clinton took control and cemented her front runner status
  • A strong showing from Donald Trump would have raised concerns that he would be able to follow through on his promises to alter key trade deals like NAFTA, which would be a decidedly negative outcome for the Loonie and Mexican Peso 
  • However, with the debate behind us and Clinton in control, the market has now turned its focus to OPEC and the near term path for oil prices as another potential source of Loonie weakness
  • Headlines this morning from OPEC's meeting in Algeria indicate that there remains a large gulf between Saudi Arabia and Iran regarding a production deal to prop up prices
  • The Saudis proposed that they would cut output to support prices if Iran froze production at current levels
  • However, Iran is insisting on much higher output targets before it freezes production 
  • As a result, it looks like this was again a classic example of "buy the rumour sell the fact”; oil prices have given up 2% this morning after having rallied as much as 9% since news of a potential deal was announced
  • In addition to the negative headlines out of Algeria, Goldman Sachs slashed its Q4 2016 price target for oil to $43/bbl from 50$ previously
  • USDCAD remains under pressure and traders will want to watch markets very closely today as a close above the 1.3255 area would increase chances of a move to 1.35/1.36 in the near term
  • As pointed out on previous occasions, USDCAD tends to strengthen during Q4 with the greenback gaining an average of 3.08% between October 1st and December 31st during the last four years (Chart 2)

Charts: (1) USDCAD testing key resistance c. 1.3239/1.3255. (2) USDCAD Seasonality Q4 Study:  2012-2015 rebased to zero, average in white. (3) Economic Calendar.