Yesterday was all about the Canadian Dollar (CAD) as traders prepared for three important pieces of economic data that usually affect the Loonie dollar – the Bank of Canada (BOC) monetary policy statement, crude oil inventories and the outcome of the OPEC (Organization of Petroleum Exporting Countries) meeting.
On top of that, the Manufacturing Sales data was due at the start of the North American session, expected to rise 9.2% after falling dramatically in the previous month. The avalanche of economic data created tight ranges on the CAD pairs, with many pairs not exceeding 150 pips range in the last trading month.
Here is a quick review of these events, their impact on the CAD, and how the market reacted.
The Joint Ministerial Monitoring Committee (JMMC) had a virtual meeting, highlighting the last changes in the oil market and acknowledging improving market conditions. As economies around the world open up, the extra oil supply is expected to be absorbed by higher demand.
Overall, OPEC delivered a hawkish perspective on the oil market and oil prices in general – a hawkish statement on the CAD considering that the Canadian economy is energy-intensive and that the Canadian oil industry employs many people both in downstream and upstream projects. Moreover, oil and oil-related products make up a big part of Canadian exports, especially to the United States.
US Oil Inventories
The US oil inventories came up much lower than expected. Investors closely watch the evolution of crude oil inventories in the United States because Canada is a major exporter – the higher the inventories levels, the bearish the impact on the CAD as the implications are that the US economy will need more oil from Canada.
The US commercial crude oil inventories data is presented without those in the Strategic Petroleum Reserve, and it showed a decrease of 7.5 million barrels in the week ending July 10, 2020. In other words, the US economic activity picks up, demand increases, inventories decrease, and more oil is needed. Verdict – bullish CAD.
While a leading indicator of economic health (it shows the total value of sales made by manufacturers), it is released with a lagging – 45 days after the month ends. Therefore, yesterday’s data refers to the month of May 2020, a bit too far away in the past to have economic relevance.
Yet, the data came out better than expected, at 10.7% on expectations of 9.2%. Verdict – bullish CAD.
Bank of Canada Monetary Policy Report
The Bank of Canada’s monetary policy decisions are always a wild card. This is one central bank not shy to surprise investors, delivering rate hikes or cuts when no one expects it to do so.
However, this time it signaled no change in its stance. Even the Canadian economic outlook improved since the last meeting, with the CPI (Consumer Price Index) expected to recover and converge towards the 2% target in the two years ahead. Verdict – hawkish CAD.
What Did the CAD Pairs Do?
CAD surged across the board – AUDCAD (lower 100 pips), EURCAD (lower 140 pips), USDCAD (lower 100 pips), GBPCAD (lower 150 pips).
For once, the fundamental analysis did work.