USD/CAD Canadian Dollar Lower Ahead of US Jobs Report

The Canadian dollar continues to lose ground against the greenback as oil prices drop after supply data points to a lack of demand. The loonie is heavily correlated with the price of oil and turbulence in the trade relationship between the US and Canada has hit the currency. The CAD is trading at lows not seen since the aftermath of the Chinese sell off in the beginning of 2016. The market volatility at the time prompted the Organization of the Petroleum Exporting Countries (OPEC) to reach out publicly to Russia in the hopes of reaching a production cut agreement. Although it took almost 9 months the deal was reached and was put into effect in 2017. With the original six month term reaching the end, an extension has been discussed but even though it appears to be a mere formality as the OPEC and non-members have seen the stability it brought to the price of oil this time it does not seem to be enough to stop the slide as US producers ramp up production.

The Canadian trade deficit shrunk to C$135 million in March as exports grew. The weak loonie contributed to the gain but volumes also increased. The data points to a rebound from the February data with a shortfall of C$800 million. Exports to the US, Canada’s largest trading partner, have come under scrutiny from the Trump Administration that has slapped tariff on softwood lumber and has issued warnings about the dairy sector. The comments come ahead of a potential renegotiation of NAFTA that has put the CAD and the MXN under pressure.

The USD/CAD lost 0.206 percent in the last 24 hours. The pair is trading at 1.3727 as the USD is higher against commodity currencies. The drop in the price of oil due to fears of a supply glut has hit the loonie. The biggest factors affecting the currency: the price of oil, economic fundamentals and political risk have all turned negative for Canada.

The aggressive rhetoric and trade actions from the United States against Canada are a preamble of the NAFTA renegotiation and has cast doubt on how safe Canada is from a unilateral decision form the Trump Administration. Canada exports 3 quarters of its products to the United States so a disruption in that relationship would be devastating for the Canadian economy.

Bank of Canada (BoC) governor Stephen Poloz will talk in Mexico City and is sure to address the need for cooperation between the two nations in order to present a united front towards a fair renegotiation of NAFTA.

Canadian jobs data will be released on Friday at the same time as the U.S. non farm payrolls (NFP). The American jobs report will grab the attention of the market as it is the biggest economic indicator release. Analysts are expecting Canada to have gained 20,000 jobs last month and the unemployment rate to remain unchanged at 6.7 percent.

The price of oil fell 3.921 percent in the last 24 hours. West Texas is trading at $45.53 a price level similar to that before the OPEC agreed to its production cut. The lack of gasoline demand ahead of driving season in the United States has raised anxiety about the global supply glut of crude and distillates even as the OPEC and other major producers have agreed to cut supply.

US shale producers have ramped up production taking advantage of the price stability of the OPEC deal and forcing the organization into extending the original six month period. The OPEC and other producers will meet on May 25 to discuss the extension.

Market events to watch this week:

Thursday, May 4
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

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

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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