The Canadian dollar has recovered from the lows suffered at the beginning of the year when the price of oil plummeted rapidly as a supply glut and record high production levels were announced. The resource based economy of Canada is not diversified enough and it almost pressured the Bank of Canada (BoC) to issue its first rate cut of 2016. Cooler head prevailed and the BOC Governor Stephen Poloz decided to hold and await the release of the first Budget of the Trudeau government which has now been scheduled to be published on March 22.
The Organization of the Petroleum Exporting Countries (OPEC) members: Saudi Arabia, Qatar and Venezuela will be holding a meeting with non OPEC member Russia with the goal to freeze production at current levels and further stabilize oil prices. This agreement has managed to boost the price of energy even though some influential OPEC members are missing like Iran, and there have been no clear production cuts promised, just a freeze at record high levels.
The USD/CAD depreciated 1.85 percent in the past week as the high correlation with oil and the CAD took the loonie higher. The pair will end the week at 1.3520 close to weekly lows as the loonie was matching the moves from energy prices step by step during the week. There was little guidance for the CAD from economic indicators this week.
Oil staged a comeback with West Texas rising 5.11 percent and Brent 6 percent as an agreement from producers appears to be on the table. The negative effect of low prices are starting to hit U.S. and Canadian Shale rigs and a commitment from the OPEC and other producers not to pump at higher levels down the line has reversed the downward trend in crude.
Next week will be defined by the U.S. non farm payroll data on Friday. This is one of those rare instances where Canadian data will not be published at the same time as the American employment numbers. The next Canadian employment change will be released on Friday, March 11. The outcome of the G20 meeting which its expected optimism and talk of cooperation will be put to the test as central banks come back in March. There is high expectations on what the European Central Bank (ECB) and the Bank of Japan (BOJ) have in mind for their next steps. The U.S. Federal Reserve is expected to hold rates as economic conditions have deteriorated since the end of 2015 when the historic first rate hike was announced.
Canadian GDP and Trade balance are the highlights for the CAD next week. The RBC Manufacturing PMI and Ivey PMI will give a better snapshot of how confident are businesses about economic conditions after the impact of low oil prices on the Canadian dollar.
CAD events to watch this week:
Tuesday, March 1
8:30 am CAD GDP m/m
9:30am CAD RBC Manufacturing PMI
Friday, March 4
8:30 am CAD Trade Balance
10:00am CAD Ivey PMI
*All times EST
For a complete list of scheduled events in the forex market visit the MarketPulse Economic Calendar