Oil price swings dictate USDCAD direction 22Dec14


Oil price swings dictate USDCAD direction

Michael O’Neill

FX Consultant / IFXA Ltd

Canada

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By Michael O’Neill

The week starts much the way it left off on Friday. The US dollar is still bid against the majors, oil price movements drive the commodity currency bloc and the Russian ruble remains under pressure.

It is also the start of the holiday season, the time to wish warm greetings and holiday blessings on your neighbors. That is, unless you are Canada and the USA. Then it is the time to announce additional sanctions on Russia. Canada added 11 Russian and 9 Ukrainian individuals to the banned list. President Obama banned the leader of a Russian motorcycle club. (in case he was planning a run across the Bering Strait.)

Mr. Obama was also in full presidential indignation over the alleged hacking of Sony pictures by North Korea and is contemplating a response. He should be contemplating a geography book as he apparently is unaware that Sony is a Japanese corporation and although Japan may be an ally, it is still a sovereign nation. Hacking Sony is Japan’s problem, not America’s.

None of these events had any impact on FX markets.

EURCAD and CADJPY support for Loonie eroding

The Canadian dollar is seeing a short term erosion in support as EURCAD selling abates and that cross turns higher while at the same time CADJPY demand is bumping into resistance in the 103.50-60 zone. This is likely only a holiday phenomenon as both EUR and JPY are widely expected to continue to decline in the New Year. However, for this week, it could be problematic for USDCAD bears, especially if WTI takes a nasty turn for the worse.

CADJPY 4-hour with resistance at 103.50-60 noted

Source: Saxo Bank

EURCAD 4-hour with intraday uptrends noted

Source: Saxo Bank

“You’re a mean one, Mister Naimi”

Saudi Arabia’s decision not to cut oil production in November had serious repercussions for oil producing nations, particularly Russia. However, Russia was likely collateral damage as the decision to let oil prices drop was aimed directly at American shale oil producers. The Wall Street Journal reports that the new Saudi strategy is a deliberate attempt to protect its market share and that the kingdom’s economy can survive at least two years with low prices.

Russia was collateral damage – Saudi Arabia’s real target is US shale producers. Pic: iStock

The target may have been American shale producers but Canadian oil sands companies have been caught in the crossfire and that has hurt the Canadian dollar.

USDCAD has rallied today from 1.1594 at the open to 1.1627 currently as WTI dipped from $57,47/bbl to $56.39.

There isn’t any Canadian economic data to help with Loonie direction this week so expect the high correlation of USDCAD to WTI to continue.

USDCAD and US oil hourly

Source: Saxo Bank

Key US data releases

Tuesday is data day for the week and despite the sheer volume of releases, the impact on FX trading is likely to be negligible.

Tuesday:

November Durable Goods (Forecast 2.5%, ex-transportation 1.0%)
November Q3 GDP (Forecast 4.1% annualised)
November Personal Consumption and Expenditures (Consumption 0.5%, Expenditures 0.5%, month over month)

Key Canadian data releases

Tuesday:

October GDP (Forecast 0.1%). The October data is expected to be a tad softer following a strong September showing. The impact on USDCAD will be limited.

– Edited by Clare MacCarthy

Michael O’Neill is an FX consultant at IFXA Ltd.

Categories FX, Foreign Exchange, Currency, Canadian Dollar

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