Canadian Dollar Forecast: Data to Support Upbeat BoC, OPEC Shock is a Risk

2021-07-05 08:00:00

CAD, USD/CAD, Analysis and Talking Points

Economic Data Likely to Support Upbeat BoC
OPEC Shock Raises Tail Risk for the Loonie

Economic Data Likely to Support Upbeat BoC

A big week, not just for England after their impressive win over the weekend sent them through to the Euro 2020 Semi-Finals, but also for the Canadian Dollar where several key data releases will be closely watched ahead of next week’s BoC monetary policy meeting. First off, today will see the release of the latest BoC Business Outlook Survey where expectations are more geared towards an encouraging report, which is likely to justify the BoC’s optimistic economic assessment. What’s more, after two monthly decreases in job creation, the June employment report is expected to have rebounded amid the easing of Covid restrictions, strengthening expectations for another decline in the BoC’s weekly asset purchase pace of C$1bln. The risk for the Canadian Dollar, however, being that the employment rebound in June is softer than expected.

Economic Calendar

Source: DailyFX

OPEC Shock Raises Tail Risk for the Loonie

The other focal point for commodity FX will be on OPEC, where a dispute between the UAE and the rest of OPEC has put the deal to ease production quotas on hold. As a guide, both Russia and Saudi Arabia had made a tentative agreement to raise production by 400kbpd/month from August to December, slightly below the consensus figure of 500kbpd. However, while the rest of OPEC had been on board with this agreement, the UAE have demanded that their baseline quota be raised from 3.2mbpd to 3.8mbpd, creating the current impasse.

The base case is for UAE’s demands to be resolved, however, the risk of the country’s exit from OPEC has seen a notable rise over the past couple of days, where the tail risk scenario would be for another price war. That said, while the Canadian Dollar’s sensitivity to oil has diminished in recent months, a price war would provide a headwind to the currency.

Canadian Dollar 1-Month Correlation to Oil Prices