USD/CAD BOC Governor Warns of Atrocious Impact of Cheaper Oil

The Canadian dollar moved lower on Monday as Bank of Canada Governor Stephen Poloz warned of the “atrocious” impact that lower oil prices could have on the economy. Crude continues to move lower as supply is far outweighing demand as the global economic slowdown continues. The USD has recovered some of the lost ground after Friday’s comments from Federal Reserve Chair Janet Yellen that focused more on the almost impending interest rate hike.

BOC Governor Poloz was interviewed by the Financial Times on Monday and although he did warn on the negative effects of lower oil prices, he was confident that a cheaper loonie would boost exports. He reiterated that the January interest rate cut of 25 basis points was pre-emptive as it will take a while to recapture the exporting firepower that was lost with a higher loonie.



Geopolitical events are keeping West Texas Intermediate in the 46.70/47.30 range. Turmoil in Yemen drove prices higher more for its geographical implications as it shares a border with Saudi Arabia than for any supply concerns. The world seems to be awash in crude and non-producing nations are taking advantage reducing their costs and inflation expectations. Oil producing nations have been dealt a heavy blow as major producers continue to pump at record levels. The OPEC is divided between members who wish to reduce the rate of production versus most notably Saudi Arabia who are taking this opportunity to recapture the market share lost in the past decade.



The CAD is also getting no support from precious metals as both silver and gold are on the back-foot today (-2.25 and 1.4% respectively). Without risk of global inflation the market has lost its appetite for safe haven as it looks for central bank action for direction.

The resurgence of the U.S. dollar along with the drop in commodity prices have pressured the loonie which has lost 9.2 versus the USD in 2015.

The Easter holiday will shorten the week with few Canadian releases expected to make an impact. The gross domestic product for the fourth quarter will be released on Tuesday. Canada releases a monthly update to the GDP figures and growth is forecasted to be around 0.2%. The trade balance will be announced on Thursday and an important figure after Governor Poloz’s statement as the deficit is expected to decrease to -1.8 billion as the fall in the loonie has given exporters an edge.

Canadian employment data usually shares a release date with the American jobs report but they have gotten out of sync in the last two months. The non farm payrolls release will be the biggest economic indicator of the week. Due to the Good Friday holiday there will be less investors watching, but given the importance of the data it is sure to make an impact. Without a Canadian counterpart the move could be one directional against the CAD. A stronger than expected report would strengthen the USD versus the CAD as the U.S. economy continues to reach levels where the Federal Reserve would be in a position to finally raise interest rates. Rate divergence would further depreciate the Canadian dollar, but as Governor Poloz illustrates it can give exporters an opportunity to recover market share with a cheaper currency. The problem lies in the competitiveness of Canadian products even at lower prices as manufacturing was deeply hurt by the rise of the loonie and has not fully recovered.

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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza