Will the Loonie clock in its SIXTH consecutive losing week next week? Here are events you should watch out for.
Housing starts and building permits (Dec. 10, 1:15 pm GMT)
Canada won’t be printing top-tier economic reports over the next couple of days, but this back-to-back release might cause a wiggle or two for the Loonie.
For one thing, there are no other major events scheduled during the trading session. The Bank of Canada (BOC) has also recently shared its preference to take cues from data releases, so any major hits or miss could inspire volatility for Loonie pairs.
Oil price updates
After weeks of speculations, OPEC and friends have announced their plans to cut their output by another 1.2 million barrels per day starting January next year.
All eyes will now be on how markets will react to the move.
Remember that it’s not just the supply side that’s worrying the markets. Slower global growth (and therefore global oil demand) is just as big of a concern for the oil industry as an oil glut.
Will the post-summit high keep oil prices afloat until the end of the week? Or will traders focus on the need for longer-term solution to oil oversupply and prospects of weaker global demand?
Last Week’s Price Review
The Loonie is turning in a mixed performance this week (as of 6:00 pm GMT), though, so the Loonie will likely be marking its fifth consecutive week of net losses soon.
Oil benchmarks are closing out the week on a high note, thanks to the bullish gap at the start of the week due to news over the weekend that the U.S. and China had agreed to a trade war truce, as well another influx of buyers when Alberta announced that it will slash oil output by 325,000 barrels per day.
Oil also spiked higher on Friday, thanks to the news that OPEC and Russia agreed to an oil cut deal of 1.2 million barrels per day, effective January 1, 2019.
But between the bullish moves on Monday and Friday, oil benchmarks were actually taking hits as hopes for a long-lasting solution to the ongoing trade war began to fade.
And as you can see in the overlay above, Loonie pairs were taking some directional cues from the slide in oil prices. However, the Loonie didn’t track oil prices very closely. In fact, the Loonie seems to have decoupled from oil prices during the first half of the week.
As mentioned earlier, oil benchmarks gapped higher and then jumped even higher because of Alberta’s announcement.
Oil then tumbled a bit, likely because of profit-taking and/or an attempt to close the gap, but buyers eventually returned to push oil prices higher again.
The Loonie initially tracked oil prices higher. And when oil prices began to turn lower, the Loonie’s price action became more mixed.
But when oil resumed its climb during Monday’s U.S. session, the Loonie began to broadly weaken. Heck, the Loonie continued to slide broadly lower until the start of Tuesday’s London session.
It’s not really clear why, but preemptive selling ahead of the BOC statement is a possible reason. It’s also possible that traders may have realized that Alberta is Canada’s oil-rich province, so Alberta’s announcement is actually bad for the Canadian economy.
Yet another possibility is that the Loonie was moving in sympathy with the broadly weaker Greenback because of fears that the U.S. economy may enter a recession due to the yield curve inversion of some U.S. bonds. After all, the U.S. is Canada’s main export market, so a recession in the U.S. would also be bad news for Canada.
In any case, what’s clear is that the Loonie got a good bashing when the BOC announced its latest monetary policy decision.
The decision to keep the Overnight Rate steady was within expectations. And what likely caused the Loonie to slump were the cautious and not-too-upbeat vibes that the BOC presented.
As for some deets, the BOC warned that (emphasis mine):
“Benchmarks for western Canadian oil – both heavy and, more recently, light – have been pulled down even further by transportation constraints and a buildup of inventories. In light of these developments and associated cutbacks in production, activity in Canada’s energy sector will likely be materially weaker than expected.”
The BOC also warned that (emphasis mine):
“CPI inflation, at 2.4 per cent in October, is just above target but is expected to ease in coming months by more than the Bank had previously forecast, due to lower gasoline prices. Downward historical revisions by Statistics Canada to GDP, together with recent macroeconomic developments, indicate there may be additional room for non-inflationary growth.”
And finally, the BOC also adopted the Fed’s data dependent rhetoric:
“The appropriate pace of rate increases will depend on a number of factors. These include the effect of higher interest rates on consumption and housing, and global trade policy developments. The persistence of the oil price shock, the evolution of business investment, and the Bank’s assessment of the economy’s capacity will also factor importantly into our decisions about the future stance of monetary policy.”
Anyhow, the BOC statement was the coup de grâce and the Loonie was poised to close out the week in second-to-last place.
Fortunately for the Loonie, it got a double boost on Friday when oil prices surged because of the OPEC oil cut deal, which I already mentioned earlier, and because of Canada’s jobs report, which revealed that around 94.1K jobs were created, which is significantly more than the 10.5K consensus.
Even better, jobs growth was driven mainly by the 89.9K increase in full-time employment. Also, the stronger-than-expected jobs growth caused the jobless rate to fall from 5.8% to 5.6%, which is the lowest reading since records began in 1976.
And as icing on the cake, the jobless rate improved even as the labor force participation rate increased from 65.2% to 65.4%, so the Canadian economy was able to absorb the influx of new and returning workers and then some.
Sadly for CAD bulls, the Loonie’s bullish spike was just not enough to allow the Loonie to join the winning side.