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Loonie Steadies After BoC with Oil Inventories and Jobs Friday Next Up

Published September 8, 2016
  • Market action overnight has been relatively subdued despite this morning's ECB interest rate decision taking centre stage
  • President Draghi held rates as widely expected and said that the current QE program of EUR 80 billion in monthly asset purchase will run until at least March 2017
  • The euro rose against the dollar by about 0.5%; we could see further volatility during Draghi's press conference where he may discuss further easing actions to be implemented before year end
  • USDCAD had little reaction to the headlines and is still holding in the upper 1.2800's 
  • Yesterday's Bank of Canada decision had a dovish tilt which hurt the Loonie, however, there were also positives to Governor Poloz's narrative
  • On the negative side, Poloz indicated that Canada's lost exporting capacity may prove difficult to recover due to a prolonged global slowdown and this has longer term implications for Canada's inflation profile
  • This was taken to indicate that the BoC will be on hold for sometime as the economy struggles to close the output gap
  • However, he also expects above trend growth in Q3 and Q4 as federal spending initiatives kick-in
  • Oil prices got a nice boost yesterday afternoon after industry group API reported that US crude inventories fell by a remarkable 12M barrels last week
  • It should be noted, though, that Tropical Storm Hermine shuttered about 11.5% of production capacity in the Gulf Coast region which contributed to the massive draw down 
  • Conversely, if official data released this morning at 11am ET from the EIA confirms the news then we should see oil prices once again move higher (in the short term), with Monday's high of $46.53 the next major level of resistance to watch for
  • A break above this would bring further gains for crude and would likely cause the Loonie to retrace more of its post-BoC losses against the USD
  • Friday remains the key in the near term trend for the Loonie as Canada reports jobs data for August with the market forecasting a +15K gain after a -31K decline in July
  • As a whole, over the last 12 months job growth has been disappointing with a mere 77k positions created, of those 71K are part time; perhaps we are due for an surprise to the upside for once!

Charts: (1) USDCAD forming a base near 1.2825? (2) Oil prices rise on inventory . (3) Economic Calendar.