USD/CAD Loonie Soars as Oil Surges Following Low US Inventories

  • Oil recovers after U.S. inventories drop and OPEC emergency meeting rumours gain traction.
  • China stock market rout continues but remains contained.
  • Federal Reserve got support from Jackson Hole symposium. Canadian data in lockstep with American indicators this week.

West Texas Crude jumped above $48 after a U.S. based report showed a decline in monthly oil inventories. The rapid rise of the black stuff boosted the Canadian dollar which regained some of the losses from last week. The Organization of the Petroleum Exporting Countries (OPEC) is also rumored to be be close to holding an emergency meeting with possible production cuts planned to keep the price of crude trending upwards.

Canadian Elections Focuses on Recession

The long journey to elections started in Canada with one big salient point. Is Canada in a recession? The technical answer is no, or rather not yet. A technical recession is when the gross domestic product has negative growth for two consecutive quarters. Canada reports monthly GDP figures which make the speculation more straightforward. With only one month to be reported there is a high probability Canada will be in a recession. This is the argument from the two political parties hoping to wrest control of the nation from the Conservatives. The monthly GDP figures posted in June and July were both negative (–0.1% and –0.2%) There is still an outside chance that the actions of the Bank of Canada were enough to avoid a recession. The Canadian electorate and the market will find out if the economy is in a technical recession on Tuesday, September 1 at 8:30 a.m. EDT.

The USD/CAD depreciated -.27% in the last twenty four hours as it came of multi year highs at 1.3327 and continues to trade at around 1.3160. The surge in crude prices is the main driver of the Loonie’s change of fortune, but given this is just the start of a busy trading week and one where the recession of the Canadian economy is confirmed the CAD will continue to be under pressure.

Employment indicators both in Canada and the U.S. will be released on Friday with plenty of data to be announced between then. Any stumbles for the big dollar will benefit the Loonie that is riding high after the surprise recovery of the price of oil. The support enjoyed by the Federal Reserve by fellow global policy makers suggest that there is tacit approval of a September rate hike. At this juncture only a string of significantly disappointing data could rule out a September rate hike completely. Even though the probability has been reduced for a Fed decision to raise interest rates in September, it has only shifted probabilities to the October and December Federal Open Market Committee meetings.

CAD events to watch this week:
Tuesday, Sep 1
8:30am CAD GDP m/m
10:00am USD ISM Manufacturing PMI
9:30pm AUD GDP q/q
Wednesday, Sep 2
8:15am USD ADP Non-Farm Employment Change
Thursday, Sep 3
8:30am CAD Trade Balance
8:30am USD Trade Balance
8:30am USD Unemployment Claims
10:00am USD ISM Non-Manufacturing PMI
Friday, Sep 4
8:10am USD FOMC Member Lacker Speaks
8:30am CAD Employment Change
8:30am USD Non-Farm Employment Change
10:00am CAD Ivey PM

*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