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8 Oct 2019

USD/CAD: Bulls looking for a dovish BoC and weakening in oil to below $50 bbls

  • USD/CAD is under the spotlight with attention to the price of oil and trade talks between the US and China this week.
  • Bulls playing the waiting game in expectations of BoC tone to turn more dovish and oil prices to break below $50 bbls.

USD/CAD is under the spotlight with attention on the price of oil and trade talks between the US and China this week. Currently, USD/CAD is trading at 1.3330 in a consolidation of the latest spike to the upside from just a touch above the 1.32 figure to recent highs of 1.3347. Today;' highs has been 1.3336 and low 1.3287. 

The price of oil has come under pressure over the last several weeks following a demand-side case whereby investors are presuming the worst from a series of disappointing economic data from the world's largest economies and powerhouses, including the USA, China and the Eurozone. 

A slowdown in the global economy means that there is too much supply and not enough demand. "The OPEC+ group of producers are likely staying the course with their production curtailment agreement until at least the end of Q1 next year, especially Saudi amid the potential Aramco IPO and Iran/Venezuela amid sanctions and economic turmoil, it is increasingly unlikely the cartel will be able to deliver the required cuts quickly enough to prevent a loosening of conditions next year," analysts at TD Securities explained. 

While the price of oil is slipping towards the YTD lows with bears looking below the $50 handle, should trade talks fail to deliver once again, expectations will be for a long delay to further negotiations and plenty of downsides risks for the economy and the price of oil. "While we don't expect significant CTA flow in the near-term, WTI crude is in the crosshairs as a break below $46.90/bbl could lead the trend follower complex to increase their shorts," analysts at TD Securities argued. 

BoC to turn more dovish

The value of the CAD has been supported of late due to the strength of the Canadian economy, despite the weakening backdrop for the price of oil. The Bank of Canada has been the most neutral of the central banks of late and hence the divergence has been a supportive factor. 

Markets are betting on further rate cuts, but a de-escalation of the US-China trade war would be a more effective solution which is unlikely to come, and hence, the BoC is likely to come with a more dovish tone in October given its focus on global developments - hence, USD/CAD could find a bid and bulls are playing the waiting game. 

USD/CAD levels: 

 

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