The US crude oil inventories is a closely-watched number as it suggests the pick-up or slow-down in the US economic activity. Also, because Canada is a big exporter of oil products to the United States, it creates volatility on both USD and CAD pairs when missing the forecast.
Yesterday it missed the forecast. U.S. crude oil inventories rose by 5.7 million barrels on expectations of a decline of -3.2 million barrels. In other words, the data missed by 8.9 million barrels – an important figure considering the inventories level is released weekly.
The Importance of the US Crude Oil Inventories
Declining oil inventories levels suggest a rising demand for oil products in the U.S. economy. As the United States economy is the largest one in the world, its expansion or contraction sends important signals about a global recovery or downturn. As a result, investors calibrate their expectations accordingly.
For the currency traders, the US crude oil inventories is an important economic release as it impacts the Canadian Dollar. The normal reaction is that when oil inventories in the United States rise, there is less need for imports from Canada, so the Canadian Dollar tends to weaken, the higher the oil inventories are.
On the contrary, when oil inventories drop more than expected, investors bid for the Canadian Dollar as Canada will export more oil products to the United States. Again, this is the normal market reaction, but when trading financial markets, the reaction to economic news is not always the logical one. If it were, trading would be so easy that anyone would do it and have tremendous success at it.
However these are not normal times. The COVID-19 changed the oil market as it did to all other markets. Moreover, summer trading conditions also affect prices.
Not only that the Canadian Dollar did not decline on the release, but it rose a bit. It could be that investors take some of the bets off the market ahead of the Canadian jobs data due to be released tomorrow. Or it could simply be that the focus is on what is happening on the macro level instead of the regional level.
To sum up, yesterday’s crude oil inventories release in the United States and the CAD reaction makes it even more interesting to watch tomorrow’s Canadian jobs data. If the CAD declines as a result, we may say that the US crude oil inventories predictive power for the CAD remains intact.