Canadian Dollar Declines as Oil Plunges to $20 Per Barrel

Canadian Dollar Declines as Oil Plunges to $20 Per Barrel
March 19, 2020

 

The greenback rallied against the Canadian dollar after Statistics Canada reported lower-than-anticipated median consumer price index for February. The loonie’s decline was also aided by fears of a global recession, which has encouraged speculators and money managers to aggressively sell crude and other fuel contracts. Better-than-anticipated housing starts data from the US Census Bureau enabled the greenback to hold ground. In the past 24 hours, the USD/CAD pair has appreciated from a low of 1.4166 to a high of 1.4408.

The consumer price index (CPI) increased 0.4% m-o-m in February, compared with 0.3% in the earlier month. The reported figures were in line with economists’ expectations. On a y-o-y basis, the CPI increased 2.2% in February, representing a decline of 0.2% from the earlier month. Barring gasoline, the CPI increased 2%, equaling the increase in December and January. Seven out of eight major sectors recorded an increase in prices on a y-o-y basis, with transportation and shelter posting a growth of 4.4% and 2.3%, respectively. On a y-o-y basis, consumer growth declined to 2.1% in February, from 3.1% in January as consumers paid more for services (2.2%) in February, compared with January (1.8%).

The common consumer price index grew 1.8% y-o-y in February, meeting economists’ forecasts. In the earlier month, the CPI increased 1.8%. However, median CPI growth edged down by a notch to 2.1%. In the prior month, the median CPI grew 2.2%. Economists had anticipated the median CPI to remain unchanged from last month.

The market was more concerned about the steep fall in oil prices as the commodity is one of the major export earners for Canada. The overall outlook for crude oil and other energy products look gloomy. In the past month, speculators and money managers have sold roughly 180 million barrels of oil and fuel contracts. The selloff began after Russia disagreed with trimming oil production in the recent meeting with OPEC+.

Angered by the Russian decision, Saudi Arabia withdrew from all prior commitments to cut oil production and announced that it would start pumping 12.3 million bps in April. The Kingdom of Saudi Arabia also intends to increase production capacity to 13 million bpd. At the end of yesterday’s closing session, WTI crude had lost 14.93% or $4.08 to trade at $23.25 per barrel. In fact, the selling was so intense that crude hit an intra-day low of $20 per barrel, the lowest price since 2002.  Similarly, Brent crude had lost 8.42% or $2.56 to close at $27.85 per barrel.

In the US, the Census Bureau reported a 5.5% drop in building permits to 1.464 million units in February. January’s revised rate stood at 1.55 million. Economists had anticipated 1.50 million building permits in February. However, housing starts increased to 1.60 million in February, from 1.57 million in January. Economists had expected 1.51 million housing starts for the reported month.

The drop in crude prices is expected to keep the loonie weak against the dollar in the days ahead.

Technically, the USD/CAD pair is rising after repeatedly testing the support level of 1.3015. The next resistance is anticipated only near 1.5650. Additionally, the stochastic oscillator is also in the bullish region. The currency pair is also trading above its 50-day moving average. Therefore, we are anticipating the currency pair to remain bullish in the short-term.

CAD - technical analysis - 19th March 2020

Disclaimer: Any financial trading analysis offered here is our opinion and is not intended as advice or direction for investors. We cannot guarantee the success of any trades made as a consequence of this article, and we encourage traders to incorporate a strong money management strategy to limit losses when they enter the markets. Please use this article as part of your own research before formulating strategies prior to trading.

Janine

Janine

Janine is our editor for related stock market news. Andrew and Janine will be focusing on providing the latest trends and where the next hit could be


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