USD/CAD Canadian dollar lower after Oil Drop

The Canadian dollar is lower on Tuesday as mixed economic data and the fall in oil prices due to high supply expectations have depreciated the loonie to near 14 month lows. The woes of mortgage lender Home Capital could deflate the housing bubble even as the Canadian Finance Minister Bill Morneau plays down the links between Home Capital and overvalued assets in major cities.

Global think tanks and organizations such as the Organization for Economic Co-operation and Development (OECD), International Monetary Fund (IMF) and others had pointed out the disconnect between prices and value in Canadian real estate. The central bank had tried to push the message across with little success until first authorities in Vancouver instituted a foreign buyer tax that was replicated in Toronto last month.

The Bank of Canada (BoC) looks unlikely to change rates anytime soon and even though the U.S. Federal Reserve will probably hold in May, June is still in play for the US central bank. The BoC’s next move might be a rate cut if the economy doesn’t gather momentum this year. The change in rhetoric from US officials also hurt the loonie. Despite some rumoured assurances from high profile members of the Trump administration it is now alongside Mexico and China as targets of trade retaliation.

The USD/CAD gained 0.224 percent in the last 24 hours. The pair is trading at 1.3712 after oil prices depreciated the loonie versus the dollar. The Canadian currency is the worst performer against the USD. Even the Mexican peso which was the worst performer earlier this year as Trump’s rhetoric hit fever pitch is now stable. In a sense this is a catch up from the Trump effect the loonie was spared.

BoC Governor Stephen Poloz will be in Mexico City on Thursday where the topic of Nafta is sure to come up. US Commerce Secretary Wilbur Ross was speaking today about the trade agreement and he considers it his biggest priority to get the agreement on the right foot without starting a trade war.

The price of oil lost 1.781 percent during the trading session. The price of West Texas is trading at $47.53 ahead of the US weekly crude inventories to be released on Wednesday, May 3 at 10:30 am EDT. The number of barrels in storage is expected to contract by 3.3 million but gasoline and distillate supplies are expected to climb as refineries are processing more but weak demand from consumers is still pressuring the price of oil.

The Organization of the Petroleum Exporting Countries (OPEC) managed to agree to a production cut deal last year that went into effect in 2017. Non-OPEC members such as Russia and Mexico joined but as the 6 month term of the deal nears the end, there is talk of an extension scheduled for May 25.

The rise in US oil production has offset the impact of the OPEC cuts on prices, but the underlying demand has not grown which poses a threat to energy producers around the world.

Market events to watch this week:

Wednesday, May 3
4:30am GBP Construction PMI
8:15am USD ADP Non-Farm Employment Change
10:00am USD ISM Non-Manufacturing PMI
10:30am USD Crude Oil Inventories
2:00pm USD FOMC Statement
USD Federal Funds Rate
9:30pm AUD Trade Balance
11:10pm AUD RBA Gov Lowe Speaks
Thursday, May 4
4:30am GBP Services PMI
8:30am CAD Trade Balance
USD Unemployment Claims
4:25pm CAD BOC Gov Poloz Speaks
9:30pm AUD RBA Monetary Policy Statement
11:00pm NZD Inflation Expectations q/q
Friday. May 5
8:30am CAD Employment Change
8:30am USD Average Hourly Earnings m/m
8:30am USD Non-Farm Employment Change

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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