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Market Update

EncoreFX’s daily market updates are written by our experienced and professional dealing team.

Loonie Follows Crude Lower

Published August 3, 2016
  • Overnight market action was broadly bearish as equities in Asia and Europe all posted declines; US and Canadian markets are set to open lower as well
  • USDCAD found some support yesterday just above the 1.3000 handle and recovered to an overnight high in the mid 1.3100's as the Loonie was unable to carry the momentum generated by last week's dismal US GDP data (Q2 GDP +1.2% VS 2.6% exp.)
  • The prospect of further delays to the Fed's widely anticipated rate hiking schedule certainly hurt the greenback and suppressed treasury yields, however one would be remiss to forget that Canadian data left lots to be desired as well
  • GDP for May contracted -0.6%, the largest fall since 2009 and greater than the -0.4% contraction anticipated
  • As well, employment growth in Canada has been stagnant for the past 12 months with a mere 108k jobs created; 77k of those are part time
  • Add to the mix weak oil prices that seem to be building bearish momentum and the case for further CAD strength is a tough one to make
  • WTI prices hit a low of $39.28 yesterday and have failed to regain the $40 mark this morning
  • Risks remain skewed to the downside as well with inventories across the oil complex at elevated levels particularly gasoline which may indicates two things: 1) lower consumer demand, and 2) increased reliance from integrated oil companies to lean on refining margins to shore up revenue
  • With consumer demand likely going nowhere fast and autumn refinery maintenance season approaching, demand for crude may continue to wane resulting in further downward pressure
  • This should keep the Loonie in check – and if US data recovers in mid Q3 then the USD bull story could be off to the races once again
  • This Friday will certainly go a long way in determining the narrative for the rest of the summer; dual June employment reports from both Canada and the US will give us a full spectrum view of the landscape as autumn approaches so get prepared for what could be a volatile end to the week

Charts:  USDCAD consolidating once again as uptrend intact.  WTI Oil breaks through key support at its 200 DMA with further downside the greater risk.