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USD/CAD Sharply Lower As Oil Output Deal Is Reached
The informal OPEC meeting held in Algiers today has resulted in a preliminary deal that will cut oil production in an attempt to stabilize oil prices. Details of the output cut will still need to be worked out, and further discussions are expected to take place at the next scheduled meeting towards the end of November, but the initial reaction in the markets have sent oil prices sharply higher.
WTI crude oil prices (USOIL) were last seen trading at $47.15 for a gain of 5% on the day, triggering a sharp rally in the Loonie.
USD/CAD briefly traded near six-month highs ahead of the news, and has dropped 1.50% from its high of the day. Oil prices can be used to gauge further downside for USD/CAD, as the rally in USOIL is seen slowing near a declining trendline. The trendline dates back to May 2015 highs on a weekly chart and has capped rallies throughout August and September.
USD/CAD trades near a horizontal level seen at 1.3085 with momentum slowing as the rally in oil prices is seen slowing. The horizontal level carries some potential to trigger a bounce, while a break of the declining trendline in USOIL would serve to renew the bearish pressure in the exchange rate. Further support in USD/CAD is seen at 1.3000.
Canada July GDP +0.5% m/m vs +0.3% m/m expected
Canada July GDP
That's a significant beat on Canadian GDP and should cool the talk of a BOC rate hike for now.
Separately, Canadian industrial product price index -0.5% vs -0.1% m/m expected. Raw materials price index -0.7% vs -1.0% exp.USD/CAD forecast for the week of October 3, 2016
The USD/CAD pair went back and forth during the course of the week, and even broke out above the 1.32 level at one point in time. However, we have formed a relatively soft looking candle so I feel that we will continue to consolidate overall, basically between the 1.30 level on the bottom and the 1.32 level on the top. With this, it’s going to be very difficult to trade this market from the longer term so therefore I’m going to stick to short-term charts as we continue to bounce back and forth overall.
USD/CAD Remains Well Supported While Oil Prices Extend Gains
USD/CAD has shown resiliency as of late as the Loonie has failed to rally despite a momentum-driven rally in oil prices. The pair remained rangebound to start out the new week, and remains relatively unchanged on the day, while oil prices have continued higher for a fourth consecutive day of gains
WTI crude oil prices (USOIL) pushed towards August highs in its recovery and was last seen trading at $48.70 for a gain of 1.38% on the day. A horizontal level at $48.82 had held the rally in August, and an attempt at the level in early European trading was met with a turn lower. Bullish momentum picked up once again in North American trading, with a reversal taking USOIL back towards the horizontal level.
USD/CAD turned lower from the open this week, but a bottom was formed ahead of the North American open, and the subsequent rally shows the pair last trading at 1.3111, relatively unchanged on the day. Data out of the United States served to fuel the recovery, with a positive reading in manufacturing data. Canadian data fell short of expectations but did not hinder the recovery.
Manufacturing PMI figures released by the Institute for Supply Management were reported at 51.5, beating expectations of 50.4 and a contraction in the prior month. Out of Canada, the RBC manufacturing PMI figures were reported at 50.3, falling short of the expected 51.5, and a prior reading of 51.1.
The latest CFTC data has indicated a significant shift in positioning for the Canadian Dollar in the week to September 27. Non-commercials turned bearish following a net long reported since April, with the latest data indicating a net short of $880mn. The bulk of the shift occurred through the covering of long positions, as the prior week’s 57,216 long contracts shrunk to 34,579.
The reversal in USD/CAD during the North American session has led to a bullish hammer print on a 4-hour chart, suggesting that the pair should remain well bid on dips. Near-term support is seen at 1.3085 and the level is within close vicinity of a rising trendline that connects late September lows with the low created shortly after the OPEC oil freeze announcement. To the upside, resistance is seen at a horizontal level residing at 1.3142, the level has already capped the recovery seen following the US ISM data release. With a relatively light economic calendar pertaining to the pair on Tuesday, there is potential for a range develop between the two levels.
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Canada August trade balance -$1.94B vs -$2.45B expected
International merchandise trade data from Statistics Canada:
In June, the trade deficit of nearly $4B was the largest in a generation.
Canada building permits August mm +10.4% vs +1.0% exp
Canada August building permits report 6 Oct 2016
Canada September employment 67.2K vs +7.5K expected
USD/CAD Breaks Five Month Range On Fischer’s Comments
The US jobs report triggered some volatility in the markets today, with the Greenback pulling back on softer numbers. The data fell slightly short of analyst forecasts, but overall expectations for a rate hike in December increased slightly following the data. Comments from Fed Fischer triggered a shift in the markets, leading to a technical breakout in USD/CAD.
The initial reaction in the markets was a move lower in the US Dollar on the softer figures, while the futures market priced in a slightly higher probability of a December rate hike, and lower odds for a move in November. The US Dollar retreated after notable gains this week but turned higher after Fischer reaffirmed that the Fed is on track in reaching its goals.
The Fed vice chair confirmed that the United States is moving closer to full employment, calling the NFP figure close to a “Goldilocks” number, and stating that the data was consistent with the positive trend in labor markets.
The Greenback turned higher following his comments, with the US Dollar index (DXY) returning to positive territory for the day. DXY had reached a low of 96.40 following the data release and was last seen at 96.82 for a gain of 0.14%.
Oil prices saw some initial volatility, but have turned lower as WTI crude oil (USOIL) is seen dropping below the $50.00 handle. The current decline has taken prices below Thursday’s low and a daily bearish engulfing candle appears probable. The combined strength of the Dollar and turn in oil prices, after seven consecutive daily gains, has triggered a technical break in USD/CAD.
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USD/CAD forecast for the week of October 10, 2016
The USD/CAD pair initially fell during the course of the week, but turned around and broke above the 1.32 level above. That being the case, I feel that the market should then try to reach towards the 1.35 level above, but it might be a bit of a grind. This is more of an investment than a trade, so having said that it’s likely that you will have to hold on through quite a bit of volatility. Ultimately, I have no interest whatsoever in selling this market currently.
USD/CAD Weekly Forecast October 10-14
USD/CAD has shown resiliency since the OPEC announcement on September 29. The currency pair has stubbornly held declines since the announcement, despite a momentum-driven rally in oil prices. A steady rally throughout the week saw the pair recover towards recent highs ahead of Friday’s NFP figures, while a turn lower in oil prices shortly after the labor data release, triggered a bullish break from a five-month range.
While the correlation between oil prices and USD/CAD has historically been strong, a clear divergence has been seen since September 29. WTI crude oil prices (USOIL) are up about 11% since then, while USD/CAD has pushed to fresh highs.
Since May, USD/CAD has appeared to be consolidating within a directionless range. A momentum-driven rally was seen from early September lows, while a range of a smaller degree developed in mid-September. Friday’s technical break shows the pair scaling above the range, clearing the 200-period daily moving average, as well as previous highs from July and September. The range break should keep the currency pair well supported in the upcoming week and has set a clear bullish signal for the medium-term.
Labor data was released out of Canada and the United States on Friday, with the Canadian data showing employment change figures increasing 67,200 beating the expected 8,500 and a prior reading of 26,200. Out of the United States, employment change increased 156,000 falling short of the expected 171,000 in September, while the August figure was revised up to 167,000 from the prior 151,000.
The data caused some volatility to the currency pair, with the initial reaction showing a move lower. The turn in USD/CAD, that led to the breakout, came as oil prices turned lower shortly after the data release.
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