USD/CAD Loonie Rises as Oil Gets End of Glut Call

The Canadian dollar rose against the USD as oil prices surged after several oil disruptions have kept global production lower and Goldman Sachs has now called an end to crude oversupply. The investment bank had previously had a $20 call on oil prices, but now analysts are seeing stockpiles shrink with higher demand and lower global production.

In Canada sales of existing homes rose 3.1 percent month over month. Sales rose 10.3 from a year ago. The two largest cities appear to be cooling down as Toronto and Vancouver’s supply shortage has prices peaking.

The USD/CAD depreciated 0.325 percent in the last 24 hours. The pair is trading at 1.2897. The Canadian dollar has been boosted by the rise of oil prices after disruptions in Nigeria and Goldman Sachs calling for the end of the crude glut. The price of West Texas Oil rose 2.66 percent and is trading at $47.23. The Low of the session was 45.87 before the price of oil surged.

Supply disruptions in Kuwait, Canada, Libya and Nigeria have kept the price of energy stable after the Organization of the Petroleum Exporting Countries (OPEC) and Russia could not agree on an oil producing freeze in April. Iran and Saudi Arabia, both OPEC member, are not on the same page which prompted the Saudi delegation to issue an all or nothing ultimatum which was not agreed to. OPEC and Russia continue to pump near record levels but North America has slowed down due to the low cost of oil making some operations less profitable and the wild fire in Canada slowing down output. The U.S. oil inventories last week shrank by 3.4 million barrels way below the forecast of a small but positive buildup.

Goldman Sachs had a previous call of $20 per barrel for the price of oil, but has now called for an end to oversupply. The investment bank has reversed their energy trend and is now eating up into the reserves built by low prices. GS is warning that the more prices rise it will bring back producers that have cut output due to cost issues, which could trigger another price correction.

Canadian manufacturing sales will be released tomorrow with a forecast of an improvement in March, but still a contraction of 0.7 percent. The CAD will react to a difference between the final outcome and the expected. Inflation data will begin to hit markets with the release of the U.S. CPI on Tuesday. CPI is anticipated at 0.4 percent and the core CPI at 0.2 percent. Inflation expectations are driving market reactions to a potential rate hike by the U.S. Federal Reserve this year. Employment has remained solid and even consumers have returned, but positive inflation remains elusive. Wage growth has been slow and the Fed will most likely wait for the economy to “run a little hot” with proven inflationary pressures before raising interest rates. The challenge in timing it right is complicated as June is just around the corner, and September is too close to the Presidential elections to be considered timely or unbiased. That leaves the December Federal Open Market Committee (FOMC) meeting again for a follow up rate hike since the historic December, 2015 decision.

CAD events to watch this week:

Tuesday, May 17
8:30am CAD Manufacturing Sales m/m
8:30am USD Building Permits
8:30am USD CPI m/m
8:30am USD Core CPI m/m
Wednesday, May 18
10:30am USD Crude Oil Inventories
2:00 pm USD FOMC Meeting Minutes
Thursday, May 19
8:30am USD Philly Fed Manufacturing Index
8:30am USD Unemployment Claims
Friday, May 20
8:30 am CAD Core CPI m/m
8:30 am CAD Core Retail Sales m/m

*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