The Canadian dollar depreciated on Wednesday after conflicting comments out of Vienna ahead of the meeting between Organization of the Petroleum Exporting Countries (OPEC) and non-OPEC members no Thursday. The production cut deal which has stabilized prices for more than a year is set to expire in March of 2018, but there is a case for extending the timeline by 9 months. Crude has already priced in an announcement tomorrow, but there is still room for disappointment as Russia could get cold feet and ask for a shorter commitment.
The US economy expanded by 3.3 percent in the third quarter as per the second estimate released today. The gap between the pace of growth in Q3 and the slowdown of the Canadian economy favours the greenback. On Friday the monthly Canadian GDP will be released with the market expecting an improvement over the 0.1 percent contraction last month.
Canadian Prime Minister Justin Trudeau will visit China on December 3 with the intention to build a plan B on trade in case NAFTA ends up disappearing. While not exactly a perfect replacement a deal with China could diversify Canada’s reliance on its neighbour to the south, but given the long negotiation periods for this type of deals it could be a decade before it is signed.
The USD/CAD gained 0.37 percent on Wednesday. The currency pair is trading at 1.286 due to strong economic indicators in the US against zero releases on the Canadian front. The US followed yesterday’s strong consumer confidence numbers with a preliminary GDP improvement of 0.3% in the third quarter. The US economy is now expected to have gained 3.3 percent in Q3. The figure came in right at the forecast, but it did help the USD regain some of the lost momentum from last week.
Politics will remain a thorn in the dollar’s side as the tax reform bills are facing rising opposition from crowdsourced efforts. The Trump’s Administration decision to once again try to do too much with the bill could end up being its undoing.
The loonie was impacted by lower oil prices as the correlation between the commodity and the currency has increased after it had decoupled earlier in the year. The news out of Vienna tomorrow will decide the path of the black stuff as OPEC members and non-members are expected to prolong the production cut agreement that has stabilized prices. For the Canadian currency the focus will be on Friday’s release of jobs and gross domestic product (GDP) data released at 8:30 am EST.
The price of oil fell in the last 24 hours. West Texas Intermediate is trading at $57.27 after conflicting headlines about the Organization of the Petroleum Exporting Countries (OPEC) meeting in Vienna forced the price of crude under the $57 price level despite the release of US crude weekly inventories showing a larger than expected drawdown.
The market is already pricing in a 9 month extension that will push the production cut agreement between OPEC and non-OPEC until the end of 2018. Russia has been rumoured to be more eager to push for a 3 to 6 month extension, which is why the technical committee that met earlier this week is offering a compromise. A 9-month extension with the possibility of a review at the 6 month mark. When the OPEC announces the extension anything lower than 9 months could cause a drop in prices.
US crude stocks were lower by 3.4 million barrels, but it was the unexpected gasoline and distillate inventories that had a negative impact in the price of oil just as the OPEC meeting is set to wrap up on Thursday.
US production has increased and with the Keystone pipeline restarted operations, but still at reduced capacity. Disruptions in North America due to weather and forest fires has kept production lower than otherwise expected with the OPEC doing the heavy lifting on price stability. The market will be watching for developments in Vienna as the floor of energy pricing has been put in place by the OPEC production cut, and once it reaches its end crude prices will be vulnerable if global demand for energy has not recovered at the same rate as production.
Market events to watch this week:
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
