The Canadian dollar repeats the trajectory of oil prices. After a temporary strengthening against the background of the results of the OPEC + summit, a very significant and prolonged decline followed. A barrel of Brent crude oil is currently being traded in the region of $ 56, while the pair of USD / CAD has updated the one and a half year high. Canadians ignore even the weakness of the US currency, which on the eve of the Fed meeting is losing ground in the entire market. Oil "drowns" the Canadian dollar, and today's release of data on inflation in Canada can only accelerate this process.
However, let's start with the "black gold". The barrel of Brent crude oil could not resist within the 60th figure, despite the results of the December OPEC Summit +. The compromise reached was not enough to boost oil prices to $ 70 per barrel. According to most experts, for this, it was necessary to reduce production by 1.7-2 million barrels per day, while the meeting participants decided to converge on a more modest figure - 1.2 million b / c. After a pulse, but very limited growth to $ 62, oil rolled down, with almost no corrective pullbacks.
This dynamic is due to several reasons. First, oil traders are concerned about the clear prospects for an oversupply in the oil market. Recent forward data on commercial stocks in the United States only heightened this concern. In particular, in Cushing, the reserves of "black gold" rose 630,000 at once last week, largely exceeding the expectations of most analysts. The API report also disappointed. The crude oil inventories increased by 3.45 million barrels, gasoline by 1.7 million barrels.
Tonight, data from the US Department of Energy will be published, which is likely to confirm the overall negative trend. According to preliminary estimates, official figures will show an increase in oil reserves by more than 2.5 million barrels. In addition, representatives of the Energy Information Service of the US Department of Energy recently reported that oil production at shale fields in the country will also increase by 134 thousand barrels per day next month, that is, to 8.1 million barrels per day.
In addition to disappointing US statistics, traders are alarmed by the actions of Saudi Arabia and the growth of oil reserves in the PRC. Thus, the Saudis reduced the cost of light oil for Asian countries, while Chinese commercial reserves of "black gold" rose to record levels, thereby reducing overall market demand.
Thus, against the backdrop of an inefficient OPEC deal (which, by the way, will come into effect only next month), in the United States, the level of oil production and reserves only grows. Saudi Arabia and China only complement the negative fundamental picture.
If we talk directly about Canada, in the main oil-producing region of the country, Alberta, they decided to reduce oil production by almost 10% in order to reduce the excess oil reserves, due to which oil prices in Western Canada collapsed to multi-year minimums. This measure will be effective from January until all stocks (35 million barrels) are sold. According to experts, this will happen either in the late spring or early summer.
In other words, the slowdown in Canadian GDP growth (by 0.1%, after a seven-month growth cycle), as well as the vague prospects for the oil market, have lowered traders' hopes of preserving the hawkish attitude of the Canadian regulator. Although at its last meeting, the Bank of Canada announced that the rate is still below the neutral level (that is, the range is 2.5% -3.5%), the regulator still softened the tone of his rhetoric. After a fivefold increase, the Central Bank announced that its further steps would be gradual. This means that the chances of a rate hike in January are minimal, although the market had previously counted on this scenario.
That is why today's data on the growth of Canadian inflation play such a large role in the context of USD / CAD prospects. According to the consensus forecast, the consumer price index will slow down significantly. On a monthly basis, it will return to the negative area again and will decline to 1.8% in annual terms (this is the minimum level since January of this year). If this forecast is confirmed, the pair will receive a new impetus for its growth.
Here, it should be noted that it is necessary to make trading decisions on the pair only after the Fed meeting since there is a risk that the US regulator will take a soft stand on its future prospects. In this case, the US dollar will collapse throughout the market, and the loonie will demonstrate a large-scale correction. But if the Fed maintains the status quo, the northern trend will continue with the main goal of 1.3550 (the top line of the Bollinger Bands on the monthly chart).
