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Loonie Improves on OPEC Speculation

Published December 9, 2016
  • USDCAD slipped a bit further overnight down to a 1.3161 low; the Canadian Dollar is the sole G10 outperformer this morning, holding on to its gains as crude futures continue to rally (WTI +1%)
  • The improvement in the Canadian dollar eased pressure on the BoC to lower rates and advanced bullishly following positive domestic data
  • With no data of note today we expect CAD to take cues from crude markets and a broader risk sentiment
  • The Federal Reserve meets next week, the first after Donald Trump’s election as President 
  • The Fed has indicated that it plans to raise rates gradually in 2017, but this could change once the new administration’s economic policies become more clear
  • Trump has stated that he plans to increase government spending and cut taxes, which could lead to higher inflation levels
  • Oil prices moved higher this morning as talks continued between OPEC and non-OPEC members on further potential output cuts to reduce the global supply of oil
  • OPEC agreed last month to reduce daily output by 1.2 million barrels a day to 32.5 million; OPEC is now asking Non-OPEC members to cut around 600,000 barrels a day… Russia indicated it will cut about 300,000 barrels a day
  • OPEC’s power to influence the markets may be limited as analysts are predicting that any further deals will bring other players (namely US shale producers) into the market, attracted by higher prices; US rig count will be out later today
  • The Euro continues to trend downwards as a result of the European Central Bank’s decision to continue asset purchases beyond May 2017; The Euro experienced its single daily loss since Britain’s vote to leave the EU in June
  • Emphasis by ECB President Mario Draghi indicating that the inflation rate will not hit its target within the bank’s 2 year forecast horizon severely dampened the currencies prospects and performance in the near term; Euro is down against USD and CAD

Chart: USDCAD Current Spot 1.3181/1.3183