USD/CAD Loonie Dragged Lower as Oil Falls After OPEC Fails to Curb Production

The USD/CAD touched 12 year highs after Friday’s economic indicators favoured the USD and put the Canadian currency in a tough spot. The USD/CAD has appreciated 1.06 percent in the past twenty four hours. Friday, December 4 was a day full of economic indicators and meetings vital to determine the value of the loonie. The American non-farm payrolls numbers were released, for the second consecutive month the U.S. economy added more than 200,000 jobs. Canada in contrast released its jobs report at the same time but with a less optimistic results. Canada shed 35,700 jobs in November which triggered a rise in the unemployment rate to 7.1%

After the ECB’s failure to communicate with markets on Thursday, December 3, the market had trouble trading the data and awaited for the next major event on the agenda: the press conference for the Organization of the Petroleum Exporting Countries (OPEC) did not cut production targets, and in fact has further reduced clarity by seeking to abandon the production ceiling set by members. Internal bickering as Iran is set to rejoin the world’s oil market has also caused analysts to estimate higher levels of crude supply.

The USD has rallied against CAD and has broken through the 1.35 price level but still seems to be holding in the short term. The latest price of the pair is 1.3505, with the low of the session being a distant 1.3363. The U.S. dollar has regained the momentum after the ECB debacle and looks to be in fine form ahead of the Federal Reserve’s rate announcement on December 16.

There is little data to aid the loonie this week. On Tuesday, Bank of Canada governor Stephen Poloz will deliver a speech titled: “The Evolution of Unconventional Monetary Policy”. The BoC held rates unchanged at 0.50 last week and is could cut, but not after figuring out how the Fed’s rate hike impacts market conditions before acting. Poloz is seen a one of the most proactive central bank governors and the title of his talk hints at what the policymaker is considering going forward. Tuesday, December 8 will also see the release of building permit data, which is expected lower as the Canadian housing market appears to be slowing down, although low interest rates are still feeling rising prices in major metropolitan areas.

OPEC Removes Production Ceiling

Oil tumbled 4.72 percent after the OPEC meeting on Friday and that fall out from comments from members who decided to keep production levels at record highs. The 12 member oil producing group was heading into a contentious meeting as leader Saudi Arabia has been getting pressure from other members who depend on oil revenue to balance their budget. The current price of spot West Texas crude of 37.50 is not doing them any favours. Saudi Arabia has been reluctant to reduce productions armed with the fact that the middle eastern’s nation costs of extraction are one of the world’s lowest. But even with a vast supply of easy to extract crude, worst case scenarios could see them run out of cash reserves if something is not done.

Iran and Russia, the first an OPEC member, have spoken about increasing energy production. Iran will be allowed to rejoin the crude market after the Iran nuclear deal was signed. Russia on the other hand is battling competitors from encroaching on its client list. Saudi Arabia already poached Sweden and Russia want to limit that exodus. The lack of an agreement even within strategic allegiances are putting further pressure on the price of oil, that will continue to fall if demand does not climb as supply is plentiful.

Canadian events to watch this week:

Tuesday, December 8
8:30 am CAD Building Permits m/m
12:50 pm CAD BOC Gov Poloz Speaks

*All times EST
For a complete list of scheduled events in the forex market visit the MarketPulse Economic Calendar

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