The US dollar depreciated 0.539 percent versus the Canadian dollar in the last 24 hours that saw the loonie follow the developments in the price of oil. The USD/CAD is trading at the day’s low 1.3685 after earlier in the session trading at 1.3859.
The loonie rose thanks to the recovery of the price of oil that in turn was boosted by US inventories of gasoline. The CAD has been tied at the hip with the price of energy and has had a correlation of almost 1 with the volatile crude. The uncertainty in the oil market is the result of various players having different goals in a world that is awash with the black stuff. Even though the Organization of the Petroleum Exporting Countries (OPEC) and Russia reached an agreement to “freeze” output, it is unclear even now if they will freeze at January levels (record highs) or if they will reach another historic level and then freeze.
Iran, although part of the OPEC, is not expected to participate in the freeze, as the nation is trying to get back to pre-sanction production levels which could mean a doubling of their production today. Market share remains a concern for Saudi Arabia, which reminded the market yesterday that it will not cut production. The goal of the freeze agreement was to stabilize the falling prices and for the time being the strategy has worked. Volatility will remain high and that stability could disappear at any moment given the vast supply compared to a shrinking demand for energy globally.
US Crude Inventories Rise, but Gasoline and Distillates Contract
The crude oil and distillates inventory report was mixed, with a higher than expected rise in crude oil, but the surprise was the higher than anticipated contraction in gasoline inventory. Crude rose by 3.5 million barrels, given there have not been production cuts in the US, and storage at Cushing, Oklahoma is a big issue. Gasoline production has accelerated and inventories were down by 2.24 million barrels, which sparked the price of West Texas and Brent higher as this is a positive sign of growing demand.
West Texas rose by 1.54 percent and Brent saw a 3.31 percent increment on a volatile day for energy. Comments from Energy Ministers have been contradictory. Yesterday Saudi Arabia’s Oil Minister lay the blame for current low prices on North American producers, ironically while attending an oil conference in Houston, Texas.
The rest of the week will have limited Canadian data participation and the market will be paying attention to the US durable goods data, the price of oil, and comments from global finance ministers ahead of the G20. US Secretary of the Treasury Jack Lew made no promises of a reaching an agreement or any action to come as a direct result of the meeting in Shanghai, bursting the bubble of some who expected a Shanghai Accord-type deal, echoing to the Plaza Accord that saw the US dollar depreciate by the cooperation of economic superpowers in 1985. The U.S. Treasury has made clear that while fiscal stimulus is accepted by the G20, currency manipulation should not be tolerated.
Events to watch this week:
Thursday, February 25
4:30am GBP Second Estimate GDP q/q
8:30am USD Core Durable Goods Orders m/m
USD Unemployment Claims
Friday, February 26
8:30am USD Prelim GDP q/q