USD/CAD Loonie Volatile on US Holiday and Oil Tumble

The USD/CAD continues to follow the movements in the price of crude. The Iran sanctions that prevented the nation’s crude to be part of international trade were lifted on Saturday and put further pressure on the price of energy. Oil dropped 2 percent in the last 24 hours. The price of West Texas broke through the $29 price level and threatened $28, but is now trading around $28.89.

The Canadian Prime Minister Justin Trudeau pledged that the Liberal budget to be unveiled in March will address the rapidly deteriorating economic factors. As part of the economic platform for the Canadian elections the Liberal party foresaw a need for fiscal stimulus to boost growth. The rapid decline of oil has put pressure on the Bank of Canada to avoid a rapid decline that could hurt the overall economy even if it can benefit exporters. The government needs to step in and lighten the load of the central bank and its commitment to stimulus is a step in the right direction.

The historic decision by the U.S. Federal Reserve to raise rates was announced in December, and since then the global macro economic headwinds have picked up strength to the point where the 4 interest rate hikes are seen as unlikely with forecasts calling for 2 or 3 as it is also an American presidential election year which would limit the interventions of the central bank during key months leading up to the election.

The USD/CAD will end up trading near the market open, 1.4487, but in fact it had a 0.82 percent gap between the high and the low of the day. The Martin Luther King holiday in the U.S. limited the amount of participants and the CAD could see further weakness once the fact of how the Iranian oil supply reentry can affect oil prices.

The unexpected decline of oil beyond $30 dollar has put the pressure on the Bank of Canada to act on Wednesday. At the end of the year there was a forecast for 1 or 2 rate cuts, but not in the first quarter as conditions were still within the BoC’s comfort zone. Bank of Canada (BoC) Governor Stephen Poloz acted proactively in 2015 with a rate cut in January ahead of the drop of commodities he knew was coming. There is a 50/50 chance now that Mr. Poloz will again try to act ahead of the Canadian government and the most likely delayed second American interest rate hike.
CAD events to watch this week:

Wednesday, January 20
8:30am CAD Manufacturing Sales m/m
8:30am USD Building Permits
8:30am USD CPI m/m
10:00am CAD BOC Monetary Policy Report
10:00am CAD BOC Rate Statement
10:30am USD Crude Oil Inventories
11:15am CAD BOC Press Conference
Friday, January 22
8:30am CAD Core CPI m/m

*All times EST