The Canadian dollar has made significant losses in the North American session so far today. Crude oil was the catalyst, having turned suddenly downward from 2019 highs before noon GMT. This overshadowed today’s manufacturing data from Canada.
USDCAD and EURCAD spiked to week highs around C$1.337 and C$1.512 respectively. The loonie also declined suddenly against the yen to around ¥83.42.
American light oil (USOIL) briefly touched new 2019 highs earlier today. However, no sooner had it touched $59.20 than a pullback began. USOIL has now lost more than a dollar in value during only a couple of hours. The Canadian dollar soon followed.
The correlation between CAD and crude oil is based mainly on the fact that Canada is the world’s seventh largest producer of crude. The country produces around 3.5 million barrels of oil every day according to the American Energy Information Administration. In addition to this, Canada is one of the largest sources of imported crude oil for the USA.
Although of much lesser importance than oil, Canada’s data on manufacturing sales this afternoon provided some support. January’s figure indicated in increase of 1% – this came against the consensus 0.4% and the previous negative 1.1%.
News that the meeting between the American and Chinese presidents has been pushed back to next month remains (at this stage) more of a driver of volatility than losses for CAD. However, it is possible that sentiment could sour notably if expectations for a trade deal decline.
Given the movements by USOIL today, traders of the Canadian dollar are most likely to look at data on supply tonight. The regular releases of the Baker Hughes rig counts from the USA at 19.30 GMT might give more clarity on possible directions for oil after the weekend.
Most of next week is quiet in terms of Canadian data. However, Friday afternoon features a number of important releases. The biggest of these for the loonie are retail sales and CPI at 12.30 GMT on March 22. Other countries’ data is also crucial next week, though. The Fed’s decision on rates in particular is likely to cause very high volatility across currency markets on Wednesday night.
The outlook for the Canadian dollar based on fundamentals is likely to remain negative into the first half of next week. Despite this, traders of CAD must be mindful of events in commodity markets – if oil returned to testing new highs, the picture could change completely.
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