The Canadian dollar had a week of up and downs heavy correlated to the price of crude. The Organization of the Petroleum Exporting Countries (OPEC) and Russia agreement was able to stabilize the price of oil, but volatility is still part of the energy trade as there are few details available and those that are known are not that encouraging. OPEC and Russia have agreed to freeze production at January levels, which for some members mean record high output. Iran has supported the move, but will most likely not limit their production to crude production during the sanction and will hope to reassume pre-sanction output which is nearly double of January’s Iranian production.
OECD Cuts Canadian Growth
The Organization for Economic Co-operation and Development (OECD) published its Interim Economic Outlook earlier today and it cut growth forecasts around the world. The global economy is now expected to remain flat from its 2015 growth. Canadian growth was pegged back to 1.4 percent from an earlier estimate of 2 percent due to its reliance on commodity exports. The Paris based organization is urging for more international cooperation, less austerity and more government spending.
Canadian Data Mixed as Economy Slows down
Canadian wholesale sales recorded a two consecutive monthly gain with 2 percent growth, with the auto sector the biggest contributor. Unemployment insurance claims rose 3.4 percent in December said Statistics Canada. On an annual basis claims rose 7.8 percent. The oil rich province of Alberta accounted for most of the annual increase as the price of crude has plummeted and only now appears to have achieved stability. Overall the mix of data was net positive given the positive news came from the non resource sector which had a solid fourth quarter in 2015. The energy sector will underperform until crude prices rise, but given the amount of supply it will take more than freezing at record high production levels to achieve that.
Inflation data and a retail sales were published on Friday. CPI rose 0.2 percent and core CPI beat estimates with a 0.3 percent boost. Retail sales contracted by more than forecasted at 2.2 percent. Core retail sales also contracted by 1.6 percent in December. The retail sales report has put huge question marks on what was thought was a strong end of the year for Canadian consumer spending. The data now shows a 2.3 percent decline on volume which is a seven year low for retailers. The strong numbers in November are now a mirage as consumers did not follow through on holiday shopping.
OPEC Oil Agreement Good First Step
The price of West Texas crude has climbed above $30 this week after the OPEC-Russia announcement to freeze production output. The on-again-off-again deal that has been in the works for weeks although you would not know it from the noncommittal comments from Saudi Arabia and Russia has finally materialized, or at least officially appears to be on. The problem is that the agreed ceiling for combined production is at January 2016 levels of production, which for most of OPEC nations are record high levels. Iran who had to decrease output due to sanctions is pumping at close to half to 2011 levels and is not likely to agree to the freeze as it has now dealt its way out of sanctions. As the world fourth largest reserves it needs to double their current production to match pre sanction levels which would still leave it behind other OPEC members who have picked up the slack left by Iran’s absence.
The price of crude has advanced this week although it has not been a linear progression. The different interpretations of the agreement and back and forth versus OPEC members have created a 12.34 percent gap between the high and low of the week. Brent has advanced 0.082 percent, while WTI posted a 2.39 percent rise from during the week.
The stability in the price of energy has helped commodity currencies. AUD, NZD and CAD are all positive versus the USD this week even as those economies struggle with weaker economic fundamentals. A stable price for a barrel of crude is doing more as a bottom appears to have been reached which will end the compound effect those economies were suffering with their own growth slowdowns.
The Canadian economic calendar will be bare next week with the oil market and the G20 meeting expected to grab the most headlines.
FX Market events to watch next week:
Tuesday, February 23
4:00am EUR German Ifo Business Climate
6:15am CHF SNB Chairman Jordan Speaks
10:00am USD CB Consumer Confidence
Wednesday, February 24
10:30am USD Crude Oil Inventories
7:30pm AUD Private Capital Expenditure q/q
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