USD/CAD Oil Support Does Not Offset a Strong USD

The USD/CAD has gained 1.49 percent in September, even as the USD had to recover from the Fed’s decision to hold rates. The CAD has been influenced by the continuing oil rout. The price of crude continues to be close to a 7 year low as OPEC production levels are at record high and Iran is soon to add to that production as the nuclear deal is underway.

The USD/CAD has gained 14.70 percent year to date as the interest rate differential expectations drive a stronger USD while the CAD is stumbling as energy prices continue to be pressured downwards. The Bank of Canada has facilitated the lower CAD with two rate cuts in 2015, with the possibility of a third one if the Federal Reserve does raise rates this year

Canadian Retail Sales Grew in July

Canadian retail sales excluding autos came in flat at 0.0 percent versus an expected 0.4 percent. Retail sales were 0.5 percent matching the forecast. Overall the data is mixed. The Canadian economy touched a technical recession with the release of the second quarter data, but while flat on the core retail sales number, overall sales continue to grow.

Consumers continue to purchase goods at a moderate pace and the weak Canadian dollar has not hit retail volume sales yet.

Volatile Oil Caught Between Low U.S. Stock But Large Global Supply

The USD/CAD is caught in a tight range between 1.3240 and 1.3360. The news that U.S. oil inventories would be lower boosted crude prices supporting the CAD in making gains against the USD. The price of oil then dropped after gasoline stocks were higher than expected and meant that supply could outpace demand in the fall. The drop in inventories was expected by market watchers, but the higher gasoline inventories was not anticipated and had more impact on driving the action on the crude trade.

Stephen Poloz say Canada Can’t Rely on Commodities

Bank of Canada Governor Stephen Poloz spoke earlier in the week at Calgary, Alberta on the topic of Canadian Energy. The BOC Governor said that Canada is not excessively dependent on commodities, while admitting that is more than 20 percent of the economy. The talk was meant to ease the minds of energy and metal producers that have been hit by a drop of global commodity prices. It can also be used to explain what Canada is trying to do to climb out of a technical recession.

Poloz called the resource economy, the backbone of Canada. How can a nation function with a week backbone? The answer appears to be a low currency. The Bank of Canada has already cut interest rates twice, and if the Federal Reserve stays in the sidelines and does not deliver the much-awaited third rate cut, Stephen Poloz will lower the interest rate again before the end of the year.

The CAD had very little data out of Canada to support it, and will finish the rest of the week on the defensive as Federal Reserve Chair Janet Yellen will Speak in Massachusetts and the U.S. final GDP for the second quarter will be released on Friday. The USD suffered a setback when the Fed held rates, but is quickly make

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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 has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. 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