2016-07-19 14:59:47

Last week the Bank of Canada left interest rate unchanged at the level of 0.5%, reasoning this decision by the fact that economic growth in Canada varies from quarter to quarter. The Bank has lowered the forecast for GDP growth in 2016 from 1.7% to 1.3% and from 2.3% to 2.2% in 2017.

At today’s, Asian session the pair USD/CAD rose by 40 points, and the rise continued at the European session. The pair is under pressure from the decline in oil prices and expectations of the release of Canadian inflation indicators on Friday: retail sales for May and consumer price index (CPI) for June. It is expected that the indices will be below the forecast.

Meanwhile, oil prices continue to decline. The oil market is negatively affected by the aggravated situation with excess supply of oil in the world. Analysts of the oil market believe that although commercial oil stocks in the USA fell by 1.25 million barrels in the week of 9-15 July, (which was the 8- week decline in a row), current level of oil reserves increased to 34.7% compared to the average level for same period in the past 5 years. Despite the fall of oil stocks, they remain excessive. The number of drilling rigs operating in the USA has been also steadily increasing in the past 6 weeks.

Oil prices go down amid uncertainty of the economic situation in the world and investors’ concerns about decline in the pace of economic growth in Eurozone and also reduction of oil consumption in Europe after Brexit.

Being a commodity currency, the Canadian dollar is sensitive to changes in the oil market. Oil is an important source of export revenue for Canada; therefore oil price is highly correlated with the price of the CAD. Supply of oil in the world outruns demand. At the same time, volume of the oil production in the world remains at the high level. In addition, the pair USD/CAD is also affected by the rise in the USD.

Given continuing probability of tightening monetary policy by the US Fed and positive data on the US economy, the USD/CAD is likely to rise in the medium term.

USD/CAD: Oil prices are going down. Fundamental analysis for 19.07.16