Oil and trade updates pulled the Loonie in both directions, but the bulls eventually won out to push the comdoll to its third winning week last week. Will it go for four this week?
Increased drilling activity in the U.S. and a brewing trade war with China limited oil price increases last week.
This week we’re paying close attention to the U.S. oil inventories report on Wednesday at 2:30 pm GMT as well as updates on the geopolitical conflicts and Syria and any news that might mean more instability in the oil-producing region.
Global trade news
As you can see below, the Loonie was especially sensitive to NAFTA and U.S.-China trade war updates.
Word around the hood is that, unlike what many are expecting, there won’t be a NAFTA-related announcement at the Summit of the Americas in Lima, Peru this week. Will this drag the Loonie across the board?
Meanwhile, the U.S. and China are at a standoff regarding their proposed tariff plans. China has hinted that it won’t trigger its crippling plans until the U.S. does, so we’ll see who pushes the green button first.
Additional tariffs and/or policies that would limit trade flows between the two largest economies could bring risk aversion back in the markets, while positive updates (Trump DID claim that he and Xi Jinping will be BFFs) could extend today’s positive risk sentiment and push higher-yielding currencies higher.
Last Week’s Price Review
The Loonie is the top currency of the week (as of 5:00 pm GMT), which marks the third consecutive week of broad-based Loonie strength.
Oil is actually down for the week. And as you can see in the overlay of CAD pairs and oil above, the Loonie did take a lot of directional cues from oil. But as you can also see, the Loonie only grudgingly weakened when oil slumped hard on Monday.
The drop in oil prices on Monday was blamed by market analysts on reports of rising Russian oil output and speculation that Saudi Arabia may cut prices on oil products making their way to Asia.
As to why the Loonie was reluctant to track oil prices, market analysts couldn’t really provide any sensible reason for that.
Anyhow, a reason to buy up the Loonie soon appeared when Bloomberg released a report that cited “three people familiar with the talks” as saying that Trump wants a preliminary NAFTA deal A.S.A.P., ideally by the time the Summit of the Americas begins on April 13.
Another reason to bid the Loonie higher also came up later, namely the recovery in oil prices. And this time, the Loonie willingly tracked oil prices higher. Although optimism related to NAFTA also likely continued to fuel demand for the Loonie since the Loonie easily crushed its peers, even though oil only rose slightly.
Fortunately for the Loonie, when oil found support after official government data from the U.S. Energy Information Administration (EIA) revealed a large draw in U.S. oil inventories, market analysts say.
After that, the Loonie steadied ahead of Canada’s trade report, even as oil dipped. And apparently, Canada’s trade report was a disappointment, so the Loonie tried to move lower. But, as mentioned in Thursday’s U.S. session recap, Canadian PM Justin Trudeau came to save the day when he said that NAFTA talks are “moving forward in a significant way.”
The Loonie then tracked oil prices again before jumping higher when the latest Canadian jobs report managed to impress.
That was apparently the Loonie’s last hurrah because oil was sliding due to renewed trade war fear, market analysts say. And that apparently capped follow-through buying on the Loonie.