No major reports scheduled from Canada this week, but a couple of catalysts just might rock the Loonie’s boat.
OPEC meeting chatter
A few days ago we saw oil prices fall sharply on speculations that the U.S. has asked Saudi Arabia to cover the supplies Iran is expected to lose amidst the U.S.’ sanctions.
But simply raising output won’t be easy to justify when other OPEC allies are making do with their own production quotas. This is why traders will pay attention to related headlines up until the June 22 meeting in Vienna.
Word around the hood is that Saudi and Russia are calling for more production allowances, something that members like Iran and Venezuela are opposed to. What makes the dilemma more interesting is that a lot of producers already can’t meet their existing quotas anyway. Will this mean a “no” for Saudi and Russia?
NAFTA and other trade-related updates
Trump targeting Trudeau and Canada’s trade policies over the weekend didn’t do the Loonie any favors in today’s Asian session trading.
Will Trudeau make good on his threats of “retaliatory tariffs” against the U.S. and incite even more trade war concerns? Will Trump go back to tweeting about “fool trades” as soon as he’s finished meeting with Kim Jong Un? More importantly, how will markets react to these scenarios?
Last Week’s Price Review
The Loonie is the third weakest currency of the week after the Greenback and the yen (as of 5:00 pm GMT), which marks the fourth week of net losses for the Loonie.
Looking at the chart above, it looks like the Loonie only took strong directional cues from oil prices on Tuesday. As for the other days, not so much. If oil didn’t drive the Loonie’s price action, then what did?
The Loonie started the week on a mixed note but got dragged lower when oil prices slumped on Tuesday due to a rumor that the U.S. supposedly requested Saudi Arabia and “some other OPEC producers” to ramp up oil output “by about 1 million barrels a day.”
Oil did eventually bounce back when Tuesday’s U.S. session rolled around. Instead of tracking oil prices higher, however, the Loonie weakened even further and market analysts blamed that on trade concerns after Economic Adviser Larry Kudlow said that Trump supposedly wants end NAFTA talks and enter into a bilateral discussions instead.
There was little follow-through selling and oil prices kept climbing, though, and so the Loonie eventually regained its footing and even began to trade broadly higher.
The Loonie then attracted even more buyers when ABC News released a report that claimed that Treasury Secretary Mnuchin supposedly advised Trump to exempt Canada from steel and aluminum tariffs.
Oil later dipped during Wednesday’s London session, which also caused the Loonie to slide. However, the Loonie quickly recovered and began charging higher, even as oil prices continued to fall.
There was no apparent reason for this wonky price action and market analysts were mostly silent on the Loonie’s strength, so I conjectured in Wednesday’s London session recap that the Loonie may have been driven higher by speculation that Trump may grant Canada an exemption, as well as preemptive positioning ahead of Canada’s economic report.
Preemptive positioning seems like a plausible reason since Canada’s trade deficit narrowed from $3.9 billion to $1.9 billion ($3.4 billion expected), but the Loonie began encountering selling pressure instead of shooting higher. However, it’s also possible that some traders were disappointed to find out that building permits issued in Canada slumped by 4.6%, much more than the expected 1.0% drop.
In any case, more selling pressure began to hit the Loonie when Ivey’s PMI reading dropped from 71.5 to 62.5 (69.7 expected).
And while there was no explosive impact, Kudlow’s comment that earlier rumors of a possible tariff exemption for Canada being “patently false” may have also helped to push the Loonie even lower since oil prices were recovering at the time.
The Loonie then began tilting slightly (but broadly) to the downside after that, ignoring the surge in oil prices on Thursday, likely because Trump tweeted the following as oil prices surged.
Prime Minister Trudeau is being so indignant, bringing up the relationship that the U.S. and Canada had over the many years and all sorts of other things…but he doesn’t bring up the fact that they charge us up to 300% on dairy — hurting our Farmers, killing our Agriculture!
— Donald J. Trump (@realDonaldTrump) June 7, 2018
Why isn’t the European Union and Canada informing the public that for years they have used massive Trade Tariffs and non-monetary Trade Barriers against the U.S. Totally unfair to our farmers, workers & companies. Take down your tariffs & barriers or we will more than match you!
— Donald J. Trump (@realDonaldTrump) June 8, 2018
The Loonie did appear to be take directional cues from oil prices come Friday, though, at least ahead of Canada’s jobs report.
And when the jobs report was released, the Loonie initially tried to move lower, given that Canada lost 7.5K jobs instead of gaining between 17K to 19K jobs as expected. Moreover, 31K full-time jobs got axed.
However, bulls quickly came in, likely because market analysts began pointing out that wage growth was near a six-year high, which means that the BOC is still likely on track for a possible rate hike by July.
And most market players apparently bought that narrative since the Loonie began to trade even higher. Although it’s also possible that we’re just seeing some short-covering by CAD bears in order to avoid weekend risk.