Weakness in crude oil prices is hitting the Canadian dollar, reports Adam Button.
Crude oil posted its biggest percentage decline in nearly two months after reports indicated Russia is unlikely to lower production at the upcoming OPEC meeting. U.S. crude dropped towards its seven-week trendline support, the Cboe Volatility Index (VIX) had its first gap up in three months and equity indices fell in line with what Ashraf Laidi said two days ago. The Canadian dollar is the biggest loser of the last 24 hours on oil's drop and could be set for further declines ahead of Canada's CPI.
The British pound (GBP) drops as Labor's Jeremy Corbyn had a strong showing in yesterday's debate with Prime Minister Boris Johnson.
Oil fell 3.3% on Tuesday to the worst levels since Nov. 1. The news was that Russia probably won't agree to a production cut at the Dec 5 OPEC meeting, according to three Reuters sources. Some members have pushed for deeper cuts to get Brent back to $70, but many countries are facing budget pressures and haven't yet complied with earlier cuts.
The news isn't really a surprise but it landed in an oil market that was reeling. Crude touched a seven-week high early on Monday but quickly reversed lower and today's news was compounded by mild unease about the US-China trade deal.
The weakness in oil boosted USD/CAD to the precipice of a five-week high. A break of 1.3271 would clear the way to 1.3000 and the October highs near 1.3340. The rally was helped along by a speech from Band of Canada senior deputy Wilkins noting that the central bank has room to maneuver on rates. She also highlighted that the economy was in good shape but the comment on rates captured the market's imagination and the implied odds of a December cut rose to 24% from 16% in the overnight indexed swap market.
Looking ahead, Canadian CPI is due later today. It will be a critical report for the BOC ahead of the Dec. 4 meeting. It's forecast to show a 1.9% year over year reading and a 0.3% rise. The BOC's three core measures are all expected to remain close to 2%. The BOC faces more inflation and wage growth than other developed-market central banks and that's why they have been reluctant to cut. However, a tick lower may further crack open the door to an insurance cut.
Adam Button is co-owner and managing director of ForexLive.com and a contributor at AshrafLaidi.com. You can see Ashraf’s daily analysis at www.AshrafLaidi.com and sign up for the Premium Insights. Ashraf's Tweet on indices here.
