USD/CAD Loonie Continues Downward Trend as US Oil Inventories Expand

The loonie depreciated versus the U.S. dollar on Wednesday by 0.529 percent in the last 24 hours. The USD/CAD touched session highs of 1.4380 after the Department of Energy released crude oil inventories showed a a 230,000 gain when more than 2 million was expected, but the real insight on last week’s numbers was the large buildup of gasoline and diesel with 8.4 million barrels and 6 million respectively. The report drove the price of West Texas below $30 for the second time in two days. The price later stabilized at $30.50.

The Canadian currency is down 3.79 percent from December 15 after 2016 started with discouraging news out of China and turmoil between oil producers that have led to a price war as production remains unchanged as demand for energy shrinks. If current conditions do not change the CAD could be on route to touch all time lows of 59 cents.

West Texas crude has flirted with price levels below $30 for for some Canadian crude barrels the price is already at $20. The rise and fall of the price of oil is the story of a similar move of the province of Alberta where the majority of the Canadian oil industry is located.

Economists at major banks are divided on what the Bank of Canada (BoC) will do next. Some analysts call for a rate cut as soon as next week when the central bank meets on Wednesday, January 20. The fact is that the low price of oil is driving the currency lower, but it is hurting the overall growth of the resource based economy. A weaker loonie is not necessarily the fix as Canadian manufacturing has not recovered and probably never will from the effects of a strong CAD following the 2008 crisis. Exports have risen, but not fast enough and with higher prices on imports inflation will be a concern.

Some analysts have even called for fiscal stimulus to take some of the weight from the Bank of Canada. Finance Minister Bill Morneau has said all the right things about stimulus via government infrastructure and tax cuts, but has shared little details ahead of the March unveiling of the first Liberal government budget.

USD/CAD Technical

S3 S2 S1 R1 R2 R3
1.4047 1.4112 1.4185 1.4323 1.4388 1.4461

    Forex events to watch this week:

    Thursday, January 14
    7:00am Bank of England Rate Decision and Minutes
    Friday, Jan 15
    8:30am USD Core Retail Sales

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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