USD/CAD – Loonie Joined at the Hip to Volatile Oil

The Canadian currency was quick to give back the gains from last week as the price of oil tumbled below $30 during the European session. Comments from the Organization of the Petroleum Exporting Countries (OPEC) seeking to stabilize the energy market alongside Russia were unsuccessful. Russian sources have been quoted as saying that due to the nation’s oil production is above breakeven given the differences in terrain and weather (the budget shortfall is another matter altogether). Those comments and the fact that Iraq announced record levels of production and Saudi Arabia’s investment to remain unchanged once again made oversupply concerns depreciated the price of crude. OPEC and non-OPEC producers alike need higher prices to balance their budget, yet their production levels give no signs of slowing down

The USD/CAD had finished last week at 1.4130 after a rebound in oil prices and good Canadian economic indicators. This week the loonie was quick to give back some of the gains as the pair trades at 1.4269.

The USD/CAD was one of the most volatile pairs on Monday. It appreciated 1.046 percent in the last 24 hours with the majority of the direction to the upside following the oil production comments from OPEC and non-OPEC members.

The Canadian delegation from Davos returns after making a positive impact on the world stage, but with plenty of questions on what it intends to do to boost the economy. The budget to be unveiled March is heavily awaited as the conventional monetary policy tool kit is quite limited and there is a need for fiscal stimulus before dipping into unconventional policies such as quantitative easing (QE). The Canadian economy is facing the brunt of the fall of commodity prices and is seeking to diversify as soon as possible. The weak loonie has been a boon for some industries such as tourism and film which can adapt quickly, but has taken manufacturing longer to recover and it remains to be seen if it can do so at all, after ironically the strong loonie made factories shutdown to be relocated to other nations seeking cost advantages.

The Canadian economic calendar is sparse this week with the monthly gross domestic product on Friday, January 30 the main highlight. The forecasts call for a 0.3 precent increment in November. Canadian retail sales for the same period surprised to the upside last week so there is optimism about the November data given the boost to retailers. The price of oil had not deteriorated as much as it did in the first weeks of 2016 which also will show up in the final GDP number released at the end of the week.

USD/CAD Technical

S3 S2 S1 R1 R2 R3
1.3877 1.3995 1.4062 1.4247 1.4365 1.4432

USD/CAD events to watch this week:

Wednesday, January 27
10:30am USD Crude Oil Inventories
2:00pm USD FOMC Statement
2:00pm USD Federal Funds Rate
3:00pm NZD Official Cash Rate
3:00pm NZD RBNZ Rate Statement
4:45pm NZD Trade Balance
Thursday, January 28
4:30am GBP Prelim GDP q/q
8:30am USD Core Durable Goods Orders m/m
8:30am USD Unemployment Claims
Tentative JPY Monetary Policy Statement
Friday, January 29
12:00am JPY BOJ Outlook Report
Tentative JPY BOJ Press Conference
8:30am CAD GDP m/m
8:30am USD Advance GDP q/q

*All times EST
For a complete list of scheduled events in the forex market visit the MarketPulse Economic Calendar

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

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