The Canadian dollar retreated on Tuesday after comments from Saudi oil minister Ali Ibrahim Naimi that the current agreement between Organization of the Petroleum Exporting Countries (OPEC) and Russia does not include reducing production to an audience in Houston. The OPEC Secretary General had earlier blamed non-OPEC producers in particular U.S. shale companies.
The price of West Texas dropped under $30 per barrel and dragged down commodity currencies including the loonie. The USD advanced 0.549 percent versus the CAD in the last 24 hours following the drop of 5.94 percent in WTI and 4.34 percent of Brent.
The USD/CAD traded as low as 1.3695 but as the price of oil kept falling the pair recorded a high of 1.3821. The Canadian government commitment to add stimulus on its March 22 budget managed to bring the USD back to trade under 1.38.
The Canadian government is forecasting a deficit of $2.3 billion in 2015, $18.4 billion in 2016–17 and $15.5 billion in 2017–18. The deficit figures are before taking into consideration the new stimulus that is to be unveiled on March 22.
The Liberal government announced the date it will unveiled its first highly anticipated budget. After having to change some the campaign promise to return to a surplus by the end of 4 years to a now undetermined date due to global macro economic conditions the market is now expecting an impressive fiscal policy stimulus. There were no hints at how committed the government is to making an aggressive first impression with the release of the budget which will keep CAD traders on the lookout for comments from the Finance Minister Bill Morneau.
A Bank of Canada (BoC) model argued that a $10 billion stimulus package had more of an upward impact on GDP than a full percentage point of rate cuts by the central bank. The BoC cut twice in 2015 and held its hand on its January meeting opting to wait for the release of the budget before planning its next move. The central bank has not discounted using unconventional tools like negative rates to get the Canadian economy back on track after the oil price shock.
The release of U.S. oil inventories tomorrow could add a further decline to oil prices if the expected rise of 3.2 million barrels materializes. Canadian economic indicators will be scarce this week and tomorrow’s inventories and the G20 meeting in China starting on Friday could have a direct impact to the loonie. The G20 is anticipated to bring some stability as the 20 biggest economies will try to cooperate to bring and end to a global recession that persists despite individual efforts. The IMF and the OECD have both urged G20 nations to find a way to mount a group effort and prioritize fiscal stimulus over monetary policy.
CAD events to watch this week:
Wednesday, February 24
10:30am USD Crude Oil Inventories
7:30pm AUD Private Capital Expenditure q/q
Thursday, February 25
4:30am GBP Second Estimate GDP q/q
8:30am USD Core Durable Goods Orders m/m
USD Unemployment Claims
Friday, February 26
8:30am USD Prelim GDP q/q
*All times EST
For a complete list of scheduled events in the forex market visit the MarketPulse Economic Calendar