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Loonie, Oil Surge on OPEC Optimism

Published November 30, 2016
  • USDCAD has traded to a three week low – in the mid 1.3300's – as oil prices pop 8% on optimism that OPEC will announce a production cut later this morning
  • The closed door session of OPEC ministers in Vienna is on-going with a press conference set for 10am EST, but leaked headlines suggest that they are actively discussing a larger cut than anticipated with the Saudis expected to bear the brunt of the deal
  • It remains a very fluid situation with speculation running wild ahead of the official announcement
  • Key to the negotiations has been an apparent thawing of relations between Iran and Saudi Arabia in which Iran will be able to return to pre-sanctions production levels 
  • Expect oil prices to either rise into the low 50's if a deal is announced or, if they fail to reach agreement or if the deal issued is a compromise, to fall back into the low 40's
  • USDCAD is at a vital area of near term support with stronger oil prices circa $50 likely leading to a test of the election night lows of 1.3265
  • Conversely, a compromise deal or no-deal outcome could easily see USDCAD back above 1.3500 by the end of day
  • A daily close below 1.3275 would suggest that the near term uptrend in USDCAD is entering a longer period of consolidation
  • On the economic data front, Canada reports Q3 GDP figures this morning at 830am EST with the market looking for 3.4% gain
  • Meanwhile, the US reports Consumption, Core PCE Prices, and Chicago PMI as well as the ADP private payrolls data
  • US data was rather strong yesterday, with consumer confidence hitting its highest reading since July 2007 and GDP rising above expectations (Chart 4)
  • The longer term trend for USDCAD continues to suggest that a stronger greenback is favoured
  • Interest rates in the two countries are diverging in favour of the US as Canada continues to be hampered by tepid growth, low inflation, and middling employment growth

Charts: (1) USDCAD supported by diverging US-CA 2yr yields. (2) OPEC production vs. proposed cut. (3) WTI Oil. (4) Economic Calendar.