USD/CAD Plunges as Russia Signals Readiness to Cap Oil Production

2016-10-10 14:55:00

Talking Points:

- Russian President Putin calls a cut or cap of oil production “probably the only appropriate decision” to help stabilize energy prices.

- USD/CAD dives from near C$1.3250 to near C$1.3150 in under an hour.

- See the DailyFX Economic Calendar for Monday, October 10, 2016.

Many market participants may be taking an extended weekend today with Columbus Day in the US and Thanksgiving in Canada, but volatility is afoot in global markets. As they say, the market will do as the market pleases, whenever it wants. On this diminished volume day, this axiom has manifested itself in energy markets surging higher on the back of exceptional clear commentary from Russian President Vladimir Putin.

Russia, as the world’s third largest oil producer and largest non-OPEC member besides the United States, carries significant sway in energy markets. Accordingly, with Russian President Putin saying that "We believe that a freeze or even a reduction in the production of oil is probably the only appropriate decision for maintaining sustainability of global energy," it’s clear a material shift in energy market supply dynamics may be on the verge of occurring; Russia’s willingness to support a cap or cut in production should help insulate recent bullish sentiment (the question is, of course, as time wears on, is whether or not the promises transpire into action).

See the DailyFX economic calendar for Monday, October 10, 2016

Chart 1: Crude Oil 1-minute Chart (October 10, 2016 Intraday)

Over the past several hours, Crude Oil prices had been firming anyway, but the commentary ‘sealed the deal’ for the latest upswing. Crude Oil was trading around $49.60/brl around 10:00 GMT today, and had rallied to near $50.50/brl before Russian President Putin’s comments hit the newswires. Thereafter, Crude Oil was able to push as high as $51.55/brl, before subsiding to $51.53/brl at the time this report was written.

Chart 2: USD/CAD 1-minute Chart (October 10, 2016 Intraday)

Concurrently, with energy prices firming over the past few hours, it became increasingly difficult for USD/CAD to maintain its rally – a dynamic that we suggested just this morning was bound to reset (both USD/CAD and Crude Oil were pressing recent highs, which historically doesn’t happen for long). USD/CAD has fallen from its highs just short of C$1.3280 today to as low as $1.3150. Over the past two weeks, USD/CAD and Crude Oil have started to trade more closely together, with the 20-day correlation having increased to +0.62.

Chart 3: USD/CAD (Inverse) versus Crude Oil Daily Chart (20-day Correlation)