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USDCAD Volatile Ahead of OPEC, Key Data

Published November 29, 2016
  • USDCAD is consolidating yesterday's 1% drop as spot trades comfortably in the mid 1.3400's this morning
  • There is a slew of data on tap during the North American session, highlighted by US Q3 GDP and consumer confidence while Canada reports its Q3 current account balance
  • Oil price volatility remains high as the market is kept on tenterhooks ahead of Wednesday's OPEC Ministers Meeting
  • WTI is 2.4% lower thus far after a sharp 5% rally yesterday as Iraqi representatives indicated they were willing to work with the Saudis to reach on agreement
  • That goodwill seems to have dissipated this morning as they remain at loggerheads over simple issues such as which set of data, OPEC or Iraqi, should be used as a reference point for determining the current level of domestic production
  • A deal is still not certain and thus volatility expectations for oil prices and USDCAD remain elevated, especially with dual US and Canadian jobs reports being released on Friday
  • From a technical perspective, USDCAD is consolidating and has found good support near 1.34 on three occasions since Nov. 15th 
  • Further down, a close below 1.3275 would likely mark a deeper period of consolidation
  • To the topside, the 1.3575 area remains key; however, spot has only tested it briefly on this latest USD rally and we would need a daily close above that level – at the very least – to gain confidence that the next leg higher is underway
  • From a fundamental perspective, risks are skewed in favour of a stronger US dollar; interest rate differentials clearly favour the greenback given that the Fed is actively discussing rate hikes while in Canada the BoC is firmly on hold
  • Indeed, the market may be underestimating the need to cut rates or introduce unconventional monetary policy tools in Canada should NAFTA negotiations take a turn for the worst
  • Expect USDCAD to remain volatile which will favour those that have a game plan to execute upon

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