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Oil Rally on Saudi Comments Gives CAD a Boost

Published August 12, 2016
  • The Loonie's fondness for good news in the oil markets was on full display yesterday following the release of an interview transcript from the Saudi oil minister, Khalid al-Falih
  • His comments revealed that the world's biggest oil producer could be reconsidering actions to stabilize oil prices when it meets with other producing nations in Algeria late next month
  • WTI and Brent futures prices reacted favourably despite any confirmation of what actions are under consideration
  • The main concern and source of skepticism is the Iran question –  in the past the Saudis have cited Iran's non-participation as cause for withdrawing from coordinated action and it remains difficult to see what would cause this stance to change
  • WTI rallied as much as 4% and has settled in at $43.48 this morning which is of some technical importance – if prices can close above this level today it may spur further gains – however, recent rallies since early August have run into strong selling pressure near this level thus far
  • The Canadian dollar got a nice boost from WTI yesterday and this morning USDCAD has dropped below recent trend line support as negative economic data from the US has spurred more USD selling
  • US retail sales for July came in at 0.0% growth compared to June, well below expectations for a 0.4% increase
  • Encouragingly, June's figures were revised upwards to 0.8% from 0.6% previously
  • The larger picture here is that the data from the US has been all over the place recently
  • Strong jobs data and healthy wage growth have been followed up by weak retail sales data which makes it very difficult for the Fed to take action…
  • …In order to hike rates they’ll likely need a second set of data to confirm the jobs data are feeding through to the broader economy
  • Next up at 10am ET are the University of Michigan Preliminary Consumer Sentiment data for August; we will see if US consumers somehow still feel confident despite having spent less in July

    Charts: (1) USDCAD uptrend under threat, 1.2975 key closing level to watch today. (2) WTI needs to get above $43.50 to spur further gains.