The OPEC+ announcement on Thursday that the cartel was extending production cuts shocked the markets. OPEC+ had been widely expected to raise production output by 500,000 barrels per day. Instead, OPEC+ took the opposite route and decided to extend production cuts. This means that OPEC+ is holding back some 9.2 million barrels from the market each day, until at least the beginning of May.
Predictably, oil prices shot higher after the surprise announcement. Brent crude jumped 4.84% on Thursday, its highest one-day gain in two weeks. With an additional gain of close to 1 percent on Friday, Brent crude punched above the USD 68 line for the first time since January 2020. WTI has shown a similar jump, as oil prices are showing positive momentum.
The sharp gain in oil prices on Thursday sent the Canadian dollar higher, as the currency dropped to 1.2575, its best showing against the US dollar since Feb. 25. However, the gains would prove to be shortlived, as USD/CAD easily recovered and erased the loonie’s gains by the end of the Thursday session. Still, the Canadian dollar’s adventure on Thursday is a reminder that the currency is strongly dependent on oil prices, as Canada is a major oil producer. Although the Canadian dollar was unable to consolidate these gains, higher oil prices should be bullish for the currency.
We could see further volatility from the Canadian dollar in today’s North American session. The US releases nonfarm payrolls (15:30 GMT), with a street consensus of 197 thousand. There are concerns that a weak ADP employment report earlier this week could be repeated, but the ADP read should not be considered a reliable forecast for the official NFP report. As well, Canada releases Ivey PMI (17:00 GMT). The index has been accelerating and the forecast stands at 49.2. A reading into expansion territory (above the 50-level) could boost the Canadian dollar.
USD/CAD Daily Chart
- USD/CAD is testing long-term resistance at 1.2690. Above, we have resistance at 1.2827 and 1.2921
- On the downside, 1.2553 was under strong pressure on Thursday, but the pair recovered and this line has some breathing room. This is followed by support at 1.2373
Canadian Dollar Dips, Nonfarm Payrolls Next
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