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USDCAD in Tight Range Post Trade Data as Oil Falls

Published December 6, 2016
  • USDCAD is trading comfortably near 1.3300 for a slight gain on the day following trade data from the US and Canada
  • Oil has declined over 2% as the OPEC rally sputters on continuing oversupply concerns from OPEC and Russia
  • Canada reported that its trade deficit shrunk to C$ -1.13B from a record C$-4.38B in September due to imports declining 6% while exports remained essentially flat; imports were skewed last month due to the purchase of an off-shore drilling rig for upwards of C$2B
  • Meanwhile, the US trade deficit increased 17.6% to US$ -42.6B on declining exports
  • The US also reported that labour costs rose a better than expected 0.7% in Q3 compared with expectations for a 0.3% rise
  • Still on tap are US factory orders and Canadian Ivey PMI at 10am EST
  • Most of the loonie's recent gains can be traced to the rise in oil prices since OPEC announced a production cut last Wednesday
  • The bullish momentum behind oil looks to be fading as the market has priced in 2017 supply targets and now awaits the result of meetings later this week to see if Russia can be swayed to join OPEC in limiting output
  • Data released yesterday shows that OPEC increased production during November to a record 34.19M bpd and this latest rise in supply means that complying with January's 32.5M bpd target will be a big task, especially with Nigeria and Libya exempt from planned cuts
  • Saudi Arabia also reduced their official selling price to Asian markets in another sign that the fight for market share is far from over and that world oil markets are very well supplied 
  • WTI remains essentially range-bound since June with prices oscillating between $40-$52/barrel
  • The Bank of Canada delivers their latest interest rate decision on Wednesday with expectations that rates will remain at 0.5%; however, the tone of the statement will be scrutinized, especially since Governor Poloz indicated that a rate cut was actively discussed ahead of the last meeting
  • Inflation and job growth remain stubbornly low in Canada relative to levels in the US and this should result in the Bank of Canada maintaining a neutral to dovish tone 

Charts: (1) USDCAD testing its recent range. (2) USDCAD seasonal performance for December re-based to zero. (3) WTI range-bound. (4) Economic Calendar.