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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.