USD/CAD: Canadian dollar off the rails as 3 catalysts push crude oil price higher


The USD/CAD pair declined in overnight trading as the market reacted to positive crude oil-related news. The Canadian dollar also gained in reaction to the relatively dovish interest rates decision by the Federal Reserve.

Canadian dollar gains crude oil price soars

Canada is the fourth-largest crude oil exporter in the world. According to the EIA, the country produces more than 5 million barrels every day and exports most of it. Therefore, the Canadian dollar is one of the most popular crude oil currencies in the world. The others are Norwegian krone and Mexican peso. As a result, the price of oil tends to have an impact on how loonie trades.

There were three big crude oil-related news last night that led to a sharp jump on oil prices. First, Reuters reported that Chesapeake Energy was preparing to file for bankruptcy. This was a big news because Chesapeake was one of the biggest shale producers in the world. It was also a big news because it came a few days after Diamondback went out of business.

All this means that most of the remaining shale producers were living in borrowed times. Some of the biggest companies at risk are companies like Pioneer Natural Resources and Devon Energy. The stock prices of the two have declined by more than 35% and 44% respectively.

Second, the EIA released inventories data yesterday. The numbers showed that crude oil inventories rose by more than 8.9 million barrels. While this was a big number, it was lower than the 10.6 million that analysts were expecting. It was also the lowest it has been in four weeks. It sends a signal that inventories will continue to fall.

The third big news came from Norway, which announced that it would cut oil production by 13%. This will be the first oil cut in 18%. Figuratively, the cut means that the country will avoid about 250k barrels per day starting from June. According to the country, the decision will bring some stability in the energy market.

In response to all these, the WTI crude oil price rose by 14% while that of Brent rose by 8%.

Loonie reacts to Fed interest rate decision

The USD/CAD pair also reacted to the Fed interest rate decision that was released yesterday. As was widely expected, the bank left interest rates unchanged and lamented about the deterioration of the US economy. Most importantly, Powell said that the bank would leave rates at the current lows until the US economy improved. This means that it could take about one or more years before the unemployment rate comes back to where it was in March.

Later today, the Canadian dollar will react to the GDP data for February. Analysts expect that the GDP rose by 0.1% during that month. This will not be a major news since the economy has already deteriorated significantly since then.

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USD/CAD technical outlook

On the daily chart, we see that the Canadian dollar has strengthened quite a bit against the USD. The USD/CAD is trading at the lowest it has been since March 16. This price is a few points above the 50% Fibonacci retracement level. It is also a few pips above the 50-day exponential moving average. This price action points to more declines as bears attempt to test the 50% retracement level at 1.3800.

On the contrary, a close above 1.4000, would mean that there were still some buyers in the market. This price is at a confluence of the 38.2% retracement level and the 25-day EMA. The 1.4000 is also an important psychological level.

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