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Canadian Dollar, Crude Oil Gain on Saudi-Russia Output Cut Confusion

Canadian Dollar, Crude Oil Gain on Saudi-Russia Output Cut Confusion

Daniel Dubrovsky, Senior Strategist

Canadian Dollar, USD/CAD, Crude Oil, Trump, Saudi Arabia, Russia – Asia Pacific Market Open

Canadian Dollar Gains as Crude Oil Soars as Investors Investigate Production Cuts

The Canadian Dollar was one of the best-performing major currencies Thursday as it reaped the benefit of volatility in crude oil prices. The commodity is a key source of revenue in Canada and can thus imply knock-on effects for the economy and monetary policy. At one point during the Wall Street trading session, WTI was up over 28% for the session before quickly trimming gains to 16.72% by the close.

The rollercoaster ride in oil could be contributed to confusion about production cuts between Saudi Arabia and Russia amid the ongoing price war. After a few days of talks, US President Donald Trump announced that Saudi Arabia and Russia were on the cusp of agreeing to major oil production cuts. He hinted that output could be trimmed by as much as 10-15 million barrels per day.

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This was met with immediate hesitation as reports crossed the wires that both Russia and Saudi Arabia had not agreed on any sizes on production cuts. The latter did call for an urgent meeting of the OPEC+ alliance as it also wants countries such as the US, Canada and Mexico to join in on reducing output. Later in the Wall Street session, Trump said he is currently not planning to ask for domestic oil producers to cut production.

Equities joined in on the rally in crude as energy stocks soared. The S&P 500 and Dow Jones closed +2.28% and +2.24% higher respectively. Meanwhile the focus on commodity prices may have pushed investors to brush aside a record 6.64 million rise in US jobless claims last week amid the coronavirus and social distancing measures. The anti-risk Japanese Yen underperformed alongside the similarly-behaving Swiss France.

Friday’s Asia Pacific Trading Session

Wall Street futures are mixed heading into Friday’s Asia Pacific trading session as investors will have to weigh the economic impact of oil output cuts against the severity of a global recession. Keep in mind that in the background, the Fed is continuing with open-ended quantitative easing. On the fiscal side of things, House Speaker Nancy Pelosi reiterated that another virus relief bill may not be in the cards for a few more weeks.

Further gains in crude oil prices ahead may bode well for the Canadian Dollar and an upbeat tone in markets could also push the sentiment-linked Australian Dollar higher. This could come at the expense of the Japanese Yen and potentially the haven-linked US Dollar. Meanwhile confirmed coronavirus cases have surpassed 1 million according to the latest report from John Hopkins University.

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Canadian Dollar Technical Analysis

USD/CAD prices continue to consolidate with a slight downside bias. On the 4-hour chart below, guiding the Loonie lower is falling resistance from last month’s top where prices stalled within highs from 2016. A close under near term rising support - pink line - from late March may send prices lower to retest the horizontal barrier between 1.3918 to 1.3986. Taking out this area may pave the way for downtrend resumption.

USD/CAD Mixed
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of clients are net long. of clients are net short.
Change in Longs Shorts OI
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Weekly -5% 6% 1%
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USD/CAD 4-Hour Chart

USD/CAD 4-Hour Chart

Chart Created Using TradingView

--- Written by Daniel Dubrovsky, Currency Analyst for DailyFX.com

To contact Daniel, use the comments section below or @ddubrovskyFX on Twitter

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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