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Loonie, Oil Higher to Start Q4; Dual Jobs Friday Awaits

Published October 3, 2016
  • USDCAD is slightly lower on the day as it plumbs into the high 1.3000's at time of writing, after closing Friday at 1.3130
  • Oil is almost 1% higher as WTI trades at $48.69 a barrel, a cumulative gain of 10% since OPEC announced a tentative agreement to cut production
  • The deal, if ratified, will seek to limit output at 32.5 – 33.0 million bpd which would be a modest cut relative to September's record level of production of 33.6 million bpd
  • Iraq, Libya and a resurgent Iran have been driving the gains in production with the Saudis flattening out recently
  • It remains to be seen if OPEC can come to more exact and binding terms in November, however, for now the market seems happy they are talking and this is putting a bid under WTI despite the obvious signs of physical supply saturation
  • USDCAD seems comfortable in its recent range of 1.2825 – 1.3285, with near term support at 1.3000 and resistance at 1.3190
  • The spread between US and Canadian two-year bond yields is widening this morning and is at its highest in 3 months; usually this would equate to USD strength, however, USDCAD spot has not moved in tandem just yet (Chart 2)
  • The US reports ISM Manufacturing data this morning while both countries report Trade figures on Wednesday and September Employment data on Friday, so we could see some fireworks before the week is over (Chart 4)
  • USDCAD tends to strengthen in Q4 with average gains of 3.08% since 2012 (Chart 3)

Charts: (1) USDCAD within recent range. (2) US-CA 2yr Spread. (3) USDCAD tends to strengthen in Q4: 2012-2015 rebased to zero shows an avg. 3.08% gain. (4) Economic Calendar.