USD putting pressure on oil and metals as OPEC debates agreement
Commodity currencies have depreciated as global prices of oil and gold have dropped against a recovering U.S. dollar following the U.S. elections. The Canadian dollar is heavily correlated to the price of crude as the economy is dependent on natural resources. The loonie stopped its rapid fall against the USD at the same time the Organization of the Petroleum Exporting Countries (OPEC) announced their plans to freeze oil production with an open invitation to other major producers. Even though the Doha meeting did not yield an agreement it showed a willingness to tackle falling prices as a collective.
Wednesday, November 30 will be full of indicators for CAD traders. The OPEC meeting will start at 5:00 am EST in Vienna. Iran and Iraq are still arguing they should be excluded from the production cut which could once again end in failure. U.S. jobs data releases begin this week with the ADP private payrolls at 8:15 am EST. Canadian monthly gross domestic product (GDP) figures will be available at 8:30 am EST forecasted to show a 0.1 percent increase. U.S. crude oil inventories will be released at 10:30 am EST.
Oil demand has not risen as fast as production which is why an agreement to curb growing supply is need to boost prices. The market share strategy launched by OPEC has not yielded the intended results but has in fact increased the rift between some members. Oil prices will dictate CAD intraday moves, first with the end of the meeting in Vienna and then with the weekly inventories in the United States.
USD/CAD has appreciated 0.181 percent in the last 24 hours. The CAD has been caught between commodity prices that were diverging earlier in the day, but are now tumbling down against the USD. The stronger dollar continues to put pressure on metal prices as the December Fed meeting approaches. Oil prices have had not help from OPEC members who are still bickering ahead of their year-end meeting in Vienna.
The Canadian economy is heavily dependent on commodity prices that with the drop in crude prices due to oversupply made the situation for the Canadian economy worse until the OPEC was able to slow-down if not stop the bleeding. The Bank of Canada (BoC) Governor made two pro-active cuts to the benchmark interest rate in 2015 based on the forecast that energy prices will tumble lower, and they did. In 2016 the BoC has remained in the sidelines, then again so has the U.S. Federal Reserve. The Canadian central bank is running out of options as the rate stands at 0.50 percent but it has not discounted negative rates and other unconventional monetary policy tools to boost the economy.
Governor Poloz has stressed that in the current economic climate just having a weak currency is not enough to boost exports. The interconnected economy demands a better competitive advantage that just low prices and Canada is struggling to discover just what that advantage is, as natural resource prices remain soft. The government has stepped in with a fiscal stimulus package in March, but positive results are few and far between as the global economy continues to stagnate.
The Organization for Economic Co-operation and Development (OECD) has predicted Canada will grow by 1.2 percent in 2016 and rise to 2.1 percent next year. The rise next year is heavily dependant on the growth in the U.S. as more than 75 percent of Canadian exports end up to the neighbour to the south.
West Texas oil has dropped 4.21 percent in the last 24 hours. The price of WTI is trading at $44.76 after conflicting comments from OPEC members have put downward pressure on crude as the future of the production cut agreement is looking uncertain. Iran was under western sanctions related to its nuclear program and is demanding other members who boosted production bear the brunt of the cut. Iraq is also seeking an exception to the cut reasoning they need the extra funds to offset the costs of fighting ISIS. Saudi Arabia has softened its stance against Iran but has only managed lukewarm support from non-OPEC members. A global agreement is needed if a strengthening of crude prices is the overarching goal. Although Russia was one of the first to respond to the Saudi Arabia freeze invitation, they have not done so for a production cut agreement which would limit the impact on global crude prices even as the battle within the OPEC ends with an agreement to reduce supply for next year.
Market events to watch this week:
Wednesday, November 30
All Day OPEC Meetings
8:15am USD ADP Non-Farm Employment Change
8:30am CAD GDP m/m
10:30am USD Crude Oil Inventories
7:30pm AUD Private Capital Expenditure q/q
8:00pm CNY Manufacturing PMI
8:45pm CNY Caixin Manufacturing PMI
Thursday, December 1
Tentative GBP Bank Stress Test Results
4:30am GBP Manufacturing PMI
8:30am USD Unemployment Claims
10:00am USD ISM Manufacturing PMI
7:30pm AUD Retail Sales m/m
Friday, December 2
4:30am GBP Construction PMI
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
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