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OPEC Optimism Keeps Loonie Afloat

Published November 22, 2016
  • Oil prices have added to their gains since Monday for a cumulative 6% rise to $48.30 for WTI on the week
  • The move has been driven by constructive comments from OPEC delegates who are meeting in Vienna to hammer out policy recommendations ahead of OPEC's ministerial meeting Nov. 30
  • USDCAD has benefited and spot continues to trade near 1.3400, a 1.5% pull back from its post-election high just shy of 1.36 on November 11
  • OPEC agreed in September – in principle – to cut production and that agreement now has to be ratified into policy by Nov. 30th
  • The ebb and flow of these types of negotiations suggests that there is a lot more jawboning and price volatility to come, and (we estimate that) the odds of agreement remain at 50-50
  • Iran and Iraq continue to be points of contention; both are seeking exemption from production ceilings
  • Beyond these immediate impediments lies the longer term development in which the US energy industry under a Trump administration may rival OPEC's supremacy… It is plausible that OPEC is trying to inoculate itself from a second boom in US shale production
  • Nonetheless, oil prices remain bid this morning and the Loonie stands to benefit in the short term
  • The Economic Calendar is rather heavy this morning with Canada reporting retail sales data for September and the US releasing existing home sales
  • Yesterday, Canada reported that wholesale trade fell -1.2% during September – a fact surely not lost on the BoC or the Federal Liberals with NAFTA re-negotiations set to begin
  • The broad USD rally has begun to consolidate last week's gains but the pull back has been shallow thus far
  • The landscape for US yields is similar, with some Treasury buyers finally emerging after a 7 day -27% plunge in prices that saw 10 year yields soar to one year highs of 2.364% from 1.716% on election night
  • The 10-year note is yielding 2.295 this morning which is coinciding with the broad rise in commodity prices and their related currencies

Charts: (1) USDCAD bias to the topside. (2) USD Index breaks out. (3) Economic Calendar.