- Canadian economy struggles to find growth
- Oil price rally exhausted as $100 price remains elusive
- GDP sends BOC rate hike odds down; October 25th meeting at 30.4% vs yesterday’s 42.2%
USD/CAD rises to a two-week high after loonie bulls disappeared after a disappointing July GDP report. It looks like Wall Street was a bit too optimistic on the Canadian economy and expectations for August is for a similar reading. The Canadian economic outlook is struggling as the impact from Bank of Canada’s aggressive rate hiking campaign is dragging the economy down. Stubborn inflation won’t be enough to keep the Bank in hiking mode as the manufacturing sector struggles. We might have to wait till 2024 for any signs of a reacceleration, so the loonie remain a choppy trade that sees a higher correlation with oil prices.
After an amazing week, month and quarter, oil was ready for some profit-taking. Energy traders quickly realized this wasn’t the time for oil to rally above the $100 a barrel level, so they are cautiously locking in some profits. Also supporting the minor drop was the EIA report that US output from the Permian Basin hit an all-time high. Oil isn’t going to have a major pullback given how tight the market will remain following the Russian fuel curbs and on expectation China’s golden week travel will boost jet fuel demand. Brent crude should have major buyers awaiting ahead of the $94 a barrel level.
Key resistance for USD/CAD lies at the 1.3650 region, with the 1.3700 level being a key price barrier. If bearishness returns, downside targets include the 1.3450 level, followed by 1.3320.
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