The USDCAD pair rose by more than 70 basis points as a dark cloud loomed over the Canadian economy. The country is now combating two problems at the same time. Oil price is slumping while the number of coronavirus cases is slowing.
Crude oil risks for Canadian dollar
Canada is the fourth largest crude oil in the world. The country produces more than 5 million barrels of oil every day and the industry employ hundreds of thousands of people. Therefore, the USDCAD pair is usually followed as a proxy for crude oil. Other oil currency pairs are USD/NOK and USD/MXN.
Yesterday, the price of US crude oil declined to less than $1 for the first time in history. As we wrote yesterday, this made the crude oil to be worthless. And, oil companies must continue producing because shutting down wells could lead to more damages.
While that was the biggest oil of the day, another thing happened in nearby Canada. The price of crude oil produced by Canada, which has always been the cheapest, became more expensive than that of WTI. This was the first time this situation happened. This is because a Canadian law shields oil producer from large swings.
However, while American shale producers will suffer, Canadian producers will suffer more because no one will buy their oil if WTI stays this low because Canadian oil will be expensive to ship to the Gulf Coast of the US.
Canada Retail Sales on Tap
Later today, we will receive the retail sales data from Canada. These numbers are important because they show the nature of consumer spending. However, these numbers will have no major impact today because of how lagging they are. The data will be for February, which is no longer relevant because of how things have changed.
Another data on the USD/CAD equation that will be watched will be existing home sales. These numbers measure the number of existing home sales that are sold in a given month. Analysts expect these sales to decline by 8.1%.
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USDCAD technical analysis
The USD/CAD pair found a significant support at the 1.3852 level on Wednesday last week. This level was between the 50% and 61.8% Fibonacci Retracement level on the daily chart. This retracement was drawn by connecting the YTD low and highs.
Now, the price is approaching the 78.6% retracement level at 1.4293. The price is also above the Ichimoku cloud, which is usually a positive move.
Therefore, I expect the price to continue rising, and possibly test the 78.6% retracement level. Any moves above this price will bring the YTD high of 1.4668 in view.
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