USD/CAD – Loonie Retreats After OECD Growth Forecast Cut

The loonie gave back some of the gains from Wednesday as the price of energy remains volatile. The aftermath of the release of the dovish minutes from the FOMC and comments from Iran supporting the Organization of the Petroleum Exporting Countries (OPEC) and Russia production agreement put the USD/CAD below 1.37. The surge in oil prices boosted the loonie, but as the USD is recovering from the notes from the January meeting and Fed members comments, the chatter around the feasibility of the OPEC deal is chipping away at the price of oil.

The Organization for Economic Co-operation and Development (OECD) published its Interim Economic Outlook earlier today and it cut growth forecasts around the world. The global economy is now expected to remain flat from its 2015 growth. Canadian growth was pegged back to 1.4 percent from an earlier estimate of 2 percent due to its reliance on commodity exports. The Paris based organization is urging for more international cooperation, less austerity and more government spending.

The USD/CAD has advanced 0.17 percent in the last 24 hours. The CAD is trading at 1.3734, close to the daily high of 1.3748 as the price of West Texas oil has moved 4.8 percent intraday to finish with a modest loss as markets argue the true impact of the OPEC-Russia agreement.

Iran has “supported” the agreement, but is not expected to keep to its sanction era production of around one million barrels a day. If anything comments from Tehran are hinting at regaining the 2.3 million barrels before 2011. Iran has the fourth largest deposits of crude and is eager to regain lost market share. Between the reduced role of OPEC and non-OPEC members like the U.S. and Canada that through technological innovations have added supply the price of energy is expected to remain low, unless there is a surge in demand.

Canadian economic data was mixed on Thursday. Canadian wholesale sales recorded a two consecutive monthly gain with 2 percent growth, with the auto sector the biggest contributor. Unemployment insurance claims rose 3.4 percent in December said Statistics Canada. ON an annual basis claims rose 7.8 percent. The oil rich province of Alberta accounted for most of the annual increase as the price of crude has plummeted and only now appears to have achieved stability. Overall the mix of data was net positive given the positive news came from the non resource sector which had a solid fourth quarter in 2015. The energy sector will underperform until crude prices rise, but given the amount of supply it will take more than freezing at record high production levels to achieve that.

Inflation data and a retail sales will be released in Canada at 8:30 am EST. The forecast calls for the core CPI to rise 0.2 percent and core retail sales to contract by 0.5 percent. Inflation data in the United States will be released at the same time with core CPI expected at 0.2 percent. Given the recent comments from Fed member James Bullard the market will be looking for signs of rising prices to give more insight into the actions of the Fed in March.

CAD events to watch this week:

Friday, February 19

4:30am GBP Retail Sales m/m
8:30am CAD Core CPI m/m
8:30am CAD Core Retail Sales m/m
8:30am USD CPI m/m
8:30am USD Core CPI m/m

*All times EST