Loonie Hit By Confluence of Factors from Oil to Trudeau
Published October 4, 2016
- USDCAD is trading in the upper 1.3100's this morning as USD gained as much as 0.8% from yesterday's lows
- Multiple factors seem to be contributing to the weak Loonie theme this morning
- First, yesterday's US economic data was strong with ISM Manufacturing data beating expectations, giving the market confidence that a rate hike can be absorbed
- Second, oil prices have pulled back; output reports released over the last few days from Russia, Libya, and Iran show solid increases in exports which will only exacerbate physical saturation
- Third, the Canadian Federal government decided to pick a fight with the Provinces over a Carbon Tax, effectively saying either "impose one by 2018, or we will"
- The third point is sure to rile Federalist spirits across the Nation; the Constitution grants the Provinces exclusivity over non-renewable resource extraction and thus a federally imposed carbon tax which would inhibit or make those activities less viable will surely be challenged in courts…
- As a result of these factors, the Loonie is on the back foot this morning
- US yields continue to rise relative to those in Canada; the 2-year spread is at its widest since June (at 0.26bps), which should put a bid under USDCAD
- WTI is -0.7% lower on the day but still above the $48 handle thus far
- There are no major economic data expected from the US or Canada until Wednesday's dual trade reports for August
- And of course, the week ends with a bang as both countries report jobs data for September; prepare as best you can!
Charts: (1) USDCAD comfortable within recent range. (2) US-Canada 2-year yield spread moving in favour of the US Dollar. (3) Economic Calendar.