USD/CAD Canadian Dollar Rises as Oil Rallies Higher

The Canadian dollar appreciated on Monday thanks to its high correlation to crude prices. The surprising news out of Algiers last week as the Organization of the Petroleum Exporting Countries (OPEC) announced an oil output cut instead of the expected freeze have boosted crude prices despite the final details still to be finalized. In Canada Finance Minister Bill Morneau announced changes aimed at reducing the risk of a real estate bubble. The unspoken goal appears to be to eliminate a tax loophole for foreigners although when pressed by reporters the Finance Minister touted the benefits of protecting Canadian residents.

The price of oil rose to a three month high at the beginning of the trading week even as other large crude producers like Russia are near record high outputs. More than a minor cut the energy markets are hoping that the Algiers agreement results in an overall change of strategy. Saudi Arabia appears to have steered away from its market share focus and is now looking to collaborate with other OPEC and non-OPEC producers to stabilize energy prices. Production disruptions and the hope of an oil output freeze have been the only positive factors for the price of a barrel of crude. Global demand is still weak as global growth is slowing down.

The GBP has fallen to a three year low agains the EUR as British PM Theresa May has outlined a timetable for Brexit. After the political disaster that was the post-vote climate in Britain, Theresa May was the only leader standing for the job of Prime Minister and has now laid out her plans to trigger Article 50 in March of 2017. Economic indicators in the U.K. have not reflected the loss of confidence that the currency fluctuations have shown, but in some cases the forex market can be faster to react and more forward looking that other asset classes and measures of economic activity.

The drama around the Deutsche Bank saga continues with speculation that the U.S. Department of Justice continue to talk about a settlement after the regulator issued a fine to the German bank. There has been optimism, but so far no formal deal has been proposed as both sides are still very much in negotiating mode.

The U.S. presidential election polls are giving an edge to former Secretary Hilary Clinton in her quest to reach the White House beating her rival Donal Trump. Clinton numbers went up following the presidential candidate debate last week, but the election is still too close to call with swing states growing in importance.

The USD/CAD lost 0.126 percent in the last 24 hours. The currency is trading at 1.3114 near the end of the trading session on Monday. The Canadian dollar rose thanks to the announcement last week in Algiers by OPEC producers that have the price of crude rising. The rise was limited as the U.S. posted positive manufacturing data with the release of the Institute for Supply Management posted its manufacturing index that showed an advance from last month and exceeds the forecast at 51.5. The purchasing managers index (PMI) in the U.S. was subdued, specially after the U.K. had an impressive 55.4 index questioning the wisdom of Brexit fears.

West Texas gained 1.284 in the last 24 hours. The price of crude is trading at $48.21 and continues to gain after the news released last week by OPEC about reaching a surprise production cut instead of the expected freeze. There was a lot to like in the buildup to the Algiers meeting specially in how it tried not to be a repeat of the meeting earlier in the year in Doha. The meeting in March ended in complete failure as all the good will leading up to the meeting was evaporated as soon as it was clear Saudi Arabia and Iran would not be able to bridge their differences. The two influential producers meet a week before Algiers to discuss and safe to assume strategize about the upcoming official meeting with other members of the group.

While there was a positive outcome to the meeting in Algiers the devil will be in the details. Those details will be agreed to in the November OPEC meeting in Vienna. The OPEC has mastered the trick of stabilizing prices without actually committing to anything, but if Vienna turns into a Doha 2.0 the price of oil could suffer another setback. Parallel to the OPEC meeting there seems to be increased crude demand in the U.S. as inventories have shown drawdowns in the past four weeks.

Market events to watch this week:

Monday, October 3
8:30pm AUD Building Approvals m/m
9:30pm NZD RBNZ Gov Wheeler Speaks
11:30pm AUD Cash Rate
11:30pm AUD RBA Rate Statement
Tuesday, October 4
4:30am GBP Construction PMI
8:30pm AUD Retail Sales m/m
Wednesday, October 5
4:30am GBP Services PMI
8:15am USD ADP Non-Farm Employment Change
8:30am CAD Trade Balance
10:00am USD ISM Non-Manufacturing PMI
10:30am USD Crude Oil Inventories
8:30pm AUD Trade Balance
Thursday, October 6
8:30am USD Unemployment Claims
Friday, October 7
8:30am CAD Employment Change
8:30am CAD Unemployment Rate
8:30am USD Average Hourly Earnings m/m
8:30am USD Non-Farm Employment Change
8:30am USD Unemployment Rate

*All times EDT
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