The Canadian dollar depreciated on Monday after oil prices fell more than 1 percent at the start of the week. Higher supply in North America and concerns about Russia’s commitment to the OPEC production cut agreement have lowered energy prices after touching two year highs. The fall in energy prices affected the loonie as the correlation between the two is resurfacing.
The Bank of Canada will release its Financial System Review on Tuesday, November 28 at 10:30 am EST. US Federal Reserve members will also feature heavily this week, with Chair nominee Jerome Powell due to testify before the US Senate at 10:00 am EST on Tuesday.
BMO released a report on the impact of NAFTA ending with the impact to Canada about 1 percent of GDP. Inflation would rise given the potential weak loonie and pricier imports which could put pressure on the BoC to raise rates. After the fifth round of talks ended in Mexico City there was a sense that little progress has been made. The end of the year is fast approaching and with the new year will come Presidential elections in Mexico and the US primaries adding more uncertainty to an already dicey negotiation. The next round of talks will happen in Washington on December 11.
The USD/CAD gained 0.52 percent on Monday. The currency pair is trading at 1.2769 as the US dollar managed to get a leg up after a short holiday week had the greenback on the backfoot. The negative impact on the US tax reforms issues remains when talking about the JPY but against all the other majors the USD appreciated. Friday, December 1 will be a busy week for CAD traders. Statistics Canada will release the monthly GDP figures as well as the employment report both at 8:30 am EST. GDP is expected to have shrunk by 0.1 percent and there is some anxiety on the job front as the first ADP job report for Canada showed a loss of 5,700 in October.
Oil prices fell at the beginning of the week. The price of West Texas Intermediate is trading at $57.65 after the Keystone pipeline will restart operations on Tuesday and doubts about Russia’s willingness to extend the OPEC production cut agreement, put pressure on crude prices.
Oil ministers will meet in Vienna on Thursday a year after a deal was reached to reduced crude production to stabilize prices by the Organization of the Petroleum Exporting Countries (OPEC). Russia and other major producers joined the agreement in December, and have already extended the deal until March of 2018, but the likely outcome from the meeting in Vienna is a second extension. The main topic of debate is for how long as different timelines have been discussed. Russia has taken the leadership position in a time when Saudi Arabia is opening too many fronts in the diplomatic arena.
The mercurial nature of OPEC members has already resulted in failed summits in the past, but it appears that Russia is seen as a conciliatory third party that could push through an extension. The main issue now is by how much will the new head of the energy class want to extend the production cut agreement. Russia was slow to comply with the cuts, and might not be as willing to go for a full 9 month extension this time around.
Market events to watch this week:
Tuesday, November 28
- 2:00am GBP Bank Stress Test Results
- 10:00am USD CB Consumer Confidence
- 11:15am CAD BOC Gov Poloz Speaks
- 3:00pm NZD RBNZ Financial Stability Report
Wednesday, November 29
- All Day All OPEC Meetings
- 8:30am USD Prelim GDP q/q
- 10:30am USD Crude Oil Inventories
- 7:00pm NZD ANZ Business Confidence
- 7:30pm AUD Private Capital Expenditure q/q
Thursday, November 30
- 8:30am USD Unemployment Claims
Friday, December 1
- 4:30am GBP Manufacturing PMI
- 8:30am CAD Employment Change
- 8:30am CAD GDP m/m
- 10:00am USD ISM Manufacturing PMI
*All times EDT
