USD/CAD Canadian Dollar Falls on Lower Oil Prices, But Stable due to USD Softness

The Canadian dollar fell 0.07 percent as oil prices dropped following President Putin’s comments casting doubts on the extension to the crude output cut agreement. The loonie got a boost from higher oil prices as supply concerns rose after the situation in Libya could eventually end up in a civil war as different groups wrestle for control of the capital.

Russia not joining the OPEC+ agreement would be a major setback as the nation alongside Saudi Arabia have been the de facto leaders in the size of the cuts but also in their solidarity. Russia is not the only nation that would be happy to break away from the pact and reassume normal production levels specially if current prices could offset some of the lost revenue.

usdcad Canadian dollar graph, April 9, 2019

CAD traders will be on the lookout for US indicators for the most part as Canadian data will be scarce this week and the spotlight falls on trade in particular anything to do with the ratification of the USMCA. The road to reaching a NAFTA 2.0 agreement was beset by obstacles and last-minute concessions and the path to ratification does not look clear, which could put downward pressure on the loonie as once again the US could go on the offensive leaving Canada with little leverage in a time of political uncertainty.

The US dollar is mixed against major pairs on Tuesday. The greenback started the week on the back foot and on a weekly basis is still trading in the red. Risk appetite rose and investors sold their long dollar positions to seek higher yielding assets after the weekend. Geopolitical uncertainty has made it a pattern to seek refuge in the big dollar when markets are closed to avoid rude awakenings during the opening of the Asian session on Monday.

The US-China trade agreement appears within reach with a possible announcement in four weeks as per President Trump, but now the White House has stepped up trade tariff threats against Europe and the Union has responded with retaliatory comments. Global growth forecasts have been impacted by the long trade dispute between the US and China with the IMF further downgraded its estimates just as the US embarks in another trade war.

Energy markets were taken by surprise as Russia is openly mulling an extension to the production cut agreement signed in 2016. The softness of the dollar and supply disruptions had taken crude to five-month highs but take profits and concerns about oversupply have put downward pressure on oil prices, despite the US dollar failing to get meaningful traction.

OIL – Russia Signals Doubts on OPEC+ Extension

Oil prices were stopped on their way above a five-month high after Russian comments are signalling a lack of support in extending the OPEC+ production cut agreement. The Saudi led initiative to bring stability to oil prices after the free fall caused by oversupply, got traction when Russia and other producers joined the deal in 2016.

West Texas Intermediate graph

Russian President Vladimir Putin said earlier today that while ready to continue to cooperate with OPEC, Russia does not support an uncontrollable rise in oil prices and current prices suit Moscow. The production cut agreement has been the biggest factor adding stability to prices, but lately supply disruptions due to geopolitics have spiked prices higher urging Russia to wonder if the deal has run its course.

The OPEC+ ministerial meeting in June will be key as revenues have been capped in the nations participating in the agreement, and some like Russia have begun to signal that they are ready to reassume their previous levels of output.

usdcad Canadian dollar graph, April 9, 2019

US sanctions against Venezuela and Iran alongside military action that could end up in a civil war in Libya have taken crude to break key levels while combined with the production cut agreement.

US shale production has been ramping up and has made America a net exporter so if the OPEC+ fails to extend the deal and global production rises oil could be facing strong downward pressures with oversupply concerns once again cropping up.

GOLD – Yellow Metal Rises on Safe Haven Flows

Gold rose 0.51 percent on Tuesday as global growth concerns rose with the IMF downgrade and the European Union outlining their retaliation strategy if the US goes through with its tariffs on European goods. The yellow metal will continue to be bid as the Brexit drama and trade stories unfold at the same time that major central banks continue their dovish rhetoric.

Gold did not accumulate enough momentum to break above $1,300 but as the week progresses and if US economic indicators continue to disappoint the yellow metal could end up higher near the end of the week.

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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