Dollar support and crude oil plunge

1 September, 2016

Despite a better-than-expected June GDP reading for Canada released on Wednesday, two key factors have led to a drop in the Canadian dollar and an extension of USD/CAD’s recovery within the past two weeks. These two factors have been strong recent support for the US dollar and a pronounced pullback in crude oil prices.

The primary driver of US dollar support has been the market’s perception that the Federal Reserve has become more hawkish and that the probability of a rate hike this year, possibly even as soon as late September, has risen. Relatively hawkish comments from both Federal Reserve Chair Janet Yellen and Fed Vice Chair Stanley Fischer last week have largely driven this sentiment. Coming up on Friday, the potentially pivotal US non-farm payrolls report will be released. Given that the labor market is a key component of the Fed’s policy decisions, Friday’s outcome could be critical in impacting the Fed’s September decision. If the data exceeds expectations again, as it has in the previous two months, the probability of a September rate hike will likely increase and the US dollar should continue to strengthen.

On the Canadian dollar side of the currency pair, Canada’s June GDP reading on Wednesday came out at 0.6% against the prior forecast of 0.4%. Despite this relatively positive release, however, a sharp drop in crude oil prices shortly after dragged down the oil-linked Canadian dollar, further boosting USD/CAD. A pullback in oil prices has been in place for around a week-and-a-half, but Wednesday’s release of crude oil inventory data for last week showed a significantly larger-than-expected build in crude stocks of 2.3 million barrels against prior forecasts of around 1 million barrels. This data helped to highlight once again the persistent oversupply situation that continues to drag down oil prices, prompting a sharp plunge for both the West Texas Intermediate and Brent Crude benchmarks on Wednesday.

The combination of a stronger US dollar and falling oil prices has boosted USD/CAD to a new three-week high from its 1.2800-area support base less than two weeks ago. In the process of this rise, the currency pair has climbed back above the key 1.3000 psychological level and reached up to hit the bottom border of a large wedge chart pattern below which price broke down in early August. In the event that the US dollar remains supported by a positive jobs report on Friday and crude oil remains plagued by oversupply concerns, USD/CAD could see a significant further extension of its recovery. Currently, major resistance lies immediately above at the key 1.3200 level, where the 200-day moving average is also presently situated. With any sustained breakout above that resistance, the next major upside targets are at the 1.3400 and then 1.3600 resistance levels.


Source link  
Markets turn focus towards Trump address to Congress

On the evening of Tuesday, February 28th, US President Trump is slated to give a major address to a joint session of Congress in lieu of the usual State of the Union address...

FOMC meeting minutes signal rate hike fairly soon – dollar unimpressed

The minutes from the most recent FOMC meeting three weeks ago – the first such meeting since Donald Trump’s presidential inauguration – were released on Wednesday afternoon...

Crude oil look set to resume bullish trend

Oil prices have been coiling for several weeks now with both contracts spending most of their time in a tight four dollar range...


US stocks could rise 6-7% further before potential crash

The US stock markets hit repeated new record highs last week. The positive sentiment has continued at the start of this week, with Asian and European markets drifting higher in an otherwise quiet day. US index futures point to further gains at the open later on...

Fed gives little indication of interest rate trajectory

The Federal Open Market Committee (FOMC) meeting has come and gone, and little has changed in the financial markets as a direct consequence. In unanimously deciding to keep interest rates unchanged, as widely expected...

Surging equities at risk ahead of earnings season

While earnings season has started on a very positive footing, however, banks and other financial companies were already expected to shine more than others due to rising interest rate expectations. As non-financial companies begin to report in the coming weeks...


Gold rebound heading for major resistance

For more than two weeks, the price of gold has been in a strong rebound from its late-December bottom around the $1125 level. This rebound follows a sustained drop in price that began from the July highs around $1375 and followed-through to the December lows...

Crude oil at higher plateau ahead of US inventory data

Crude oil prices have recently been lifted to year-to-date highs on a successful agreement to cut oil production and control supply among major OPEC and non-OPEC oil producers...

Gold rebounds off key level ahead of busy week

As we reported the possibility on Friday of last week, gold did indeed fall further lower this week. The rising dollar, yields and US equity prices all weighed on the appeal of the buck-denominated, noninterest-bearing and perceived safe-haven precious metal...

  


Share: