Crude oil hits 3-month low, BCB's efforts pay off

Forex News and Events

Is this light at the end of the tunnel? (by Arnaud Masset)

Yesterday, the BCB released its weekly survey. And the report showed that even though analysts raised again their inflation anticipation for the end of 2015 to 9.04% from 9% a week earlier, they also reduced their estimates for 2016 - closer to the 4.5% target - to 5.45% from 5.5% a week earlier. It’s a small step but it may be the beginning for a trend reversal as it suggests that the Central Bank’s efforts to restore its credibility have finally paid off.

However, the future doesn’t look that bright for the Brazilian economy according to median forecast. The report shows that economists lowered their estimates for 2015 GDP to -1.50% from -1.30% a month ago while they anticipate industrial production to contract 4.72% during the same year. We think that the Brazilian economy will suffer more than previously anticipated as the BCB still need to anchor its renewed credibility and has to continue its fight against elevated inflation. At the moment, we expect the BCB to increase the Selic rate by another 50bps at its next meeting on July 29th as the current weakness of the BRL will add more inflation pressure on the Brazilian economy.

Crude oil collapses (by Yann Quelenn)

Yesterday, oil prices collapsed at $52.94 a barrel after a nearly 6% decline. It is its lowest level since April. In less than two weeks WTI Crude prices have collapsed by 13%. Global uncertainties are pushing oil prices to the downside. Mounting evidences of this massive decline are given on both oil demand and supply. The global context confirms that surge oil was only temporary and we expect oil prices to remain low at least for some time.

The no-vote in Greece increased contagion fears that would certainly decrease oil demand in Europe. Furthermore the current blow-up of the Chinese stock market is likely to also decrease demand. Indeed, Chinese oil imports shrank by nearly 10% YoY in May. Furthermore an agreement between Iran and Western Countries is set to take place. And in this case, sanctions against Iran would be lifted off. However, as Iran has already announced, it will oversupply the oil market.

US drilling rigs counts have risen for their second consecutive week which will have a positive impact on the US production. At last, it is worth adding that OPEC production June report will be released next Monday and traders are concerned on a production increase. All those uncertainties weigh on the oil prices which is set to remain low for the summer. The WTI support at 49.88 is on target.

USDCAD - Setting a 4-Month High