USD/CAD – Loonie Slightly Lower After Oil Drop

The USD was under pressure at the start of the week, but the CAD was not of the currencies that capitalized on the big dollar’s pain. Commodity prices tumbled and with that any hopes of loonie gains. Safe haven trades such as EUR, JPY and gold advanced against the USD.

The CAD got a temporary boost from positive economic data with December’s building permits doubling expectations with a 11.3 percent gain after a disappointing 19.9 loss on the previous month.

The Bank of Canada (BoC) Deputy Governor Timothy Lane followed through on the same rhetoric issued last month by BoC Governor Stephen Poloz. Fiscal stimulus is needed to stabilized the Canadian financial industry. One of the risks highlighted by the BoC Deputy were low interest rates that have triggered record high levels of household debt. The central bank is urging the government, in particular calling out regulators to take responsibility.

After holding rates unchanged the Canadian central bank is putting the onus on the government’s budget expected to bring fiscal stimulus as promised during the election campaign. The Canadian interest rate is already at 0.50 percent leaving little room for conventional monetary policy action. It makes sense for the BoC to let the government step up first with fiscal stimulus before it goes reaching into the unconventional monetary tool kit, such as negative rates.

In comments in Montreal today Mr. Lane did mention that the BoC had not included the possible positive impact from the fiscal stimulus package to be unveiled in March as part of the central bank’s forecast.

The USD/CAD traded sideways for most of the Asian session and with start of European trading and as oil dropped in price only then did the USD start advancing versus the CAD. The USD/CAD gained 0.138 percent in the last 24 hours. The lack of any definitive economic data for Canada will offer little support for the loonie in the days ahead.

Brent crude lost 3.16 percent and West Texas fell 2.62 percent as producer agreement talk seems to have vanished. It was always going to be a long shot for Saudi Arabia, Iran and Russia to move forward with a production cut, and it seems even the mere exercise of discussing the deal prove to be out of their reach.

The price of oil continues to fall and it has a deeply divided Organization of the Petroleum Exporting Countries (OPEC) looking for answers. Shale producers are hurting, but then again so are Saudi revenues so this is really becoming a race to the bottom.

U.S. Federal Reserve Chair Janet Yellen’s two testimonies this week will be the focus of CAD traders as the market awaits what her comments will be regarding monetary policy, but also how aggressive the questioning is from congressmen and senators in special committees.

CAD events to watch this week:

Thursday, February 11
8:30am CAD NHPI m/m

*All times EST