Over the past two weeks, the USD/CAD pair has demonstrated a sluggish, but quite steady growth. During this period, the price rose by almost 200 points, reaching the 28th figure. The weak pace of Canadian inflation and the disappointing news of the NAFTA negotiating process put pressure on the "loonie." But at the moment, the fundamental background for the Canadian is gradually changing for the better - first of all due to the oil market.
Traditionally, on the eve of key events, traders react to all sorts of rumors, comments, assumptions and guesses. Now this process is noticeably more active. After a week - November 29-30 - the most important event for oil traders this year will take place. It's about the Vienna meeting of OPEC +, where the fate of the agreement on limiting oil production will be discussed.
At the moment, the the agreement is scheduled to expire in March 2018 It is widely expected by the market that the agreement will be extended at least until the end of next year. Any changes in the direction of increasing the time period or increasing the number of participants in the agreement will have a positive impact on the oil market and commodity currencies. Currently the market is literally awash with such rumors. For example, Bloomberg has reported "insider" information that more than 10 countries will join the mentioned agreement, including Indonesia, Argentina, Tajikistan and South Africa. However, these countries have little influence on the overall picture of the oil market, so in this case, the very one-sided nature of the process is important.
As for key market players, there is also a certain optimism. Particularly, Saudi Arabia in late October pushed for the extension of the deal (although without specifying a time frame). Earlier a similar position was expressed by the officials of the UAE.
The main issue is the extension of the agreement. And although many experts are confident that the parties will extend it by the end of next year, not everyone agrees with such an optimistic scenario. A number of experts warned that the deal could be temporarily extended until June 2018, that is, until the next OPEC + summit. Such caution will disappoint oil traders, and Brent may again go under the 60th figure.
But at the moment the market is optimistic. And the growth of oil quotes is due not only to the expectation of the Vienna meeting.Yesterday, oil traders were pleasantly surprised that US oil inventories fell by 6.36 million barrels at the end of last week. And although it is unofficial data (API), such dynamics in any case supports oil. If the U.S. Energy Information Administration confirms this trend today, the rise of prices will continue.
Oil refiners also reacted to a large-scale leak of oil products, which occurred on one of the sections of the Keystone pipeline. A total of 6,000 barrels of oil are reported to have been leaked. The TransCanada specialists have now closed the damaged area, and repairs are under way.
As one can see, the fundamental background for the Canadian dollar is quite favorable. In a pair with the US dollar, it still took a course to strengthen, although this process is going without much enthusiasm. And it's not just the pre-holiday mood of investors.
Yesterday, the fifth round of talks on the revision of the terms of the North American Free Trade Agreement (NAFTA) was completed. The dialogue again ended in vain: the parties could not find a compromise on the major disagreements. And although the participants said "about some progress" was achieved, the market was skeptical about these words. Sources close to the negotiation process speak of a stalemate without any perspective. The position of the Americans is so peremptory and unacceptable for Canada and (especially) Mexico, that it is too early to speak about any progress.
Particularly, the States insist that US cars (produced in Mexican and Canadian plants) by 50% consist of parts manufactured in the US. In addition, the parties cannot agree on other key issues, for example, on the mechanism for resolving disputes.
In this context, the comment of the representative of the Canadian side is very typical. Chrystia Freeland talked about "undetermined difficulties" in the negotiation process. According to her, Canada, though hoping for the best, is also "preparing for the worst." Thus, the probability of NAFTA disintegration is very high, and this fact exerts background pressure on the Canadian currency. The next round of talks will be held in late January next year. But the "deadline" is scheduled for the spring of 2018, when the pre-election presidential race begins in Mexico. And if Trump does not make any concessions before this date, the fate of the agreement will be doomed.
Thus, the Canadian dollar, on one hand, feels support from the oil market, and on the other hand - is subject to pressure due to a number of "internal" problems. Technically, the pair also stands at a crossroads. On the daily chart, the price is located on the middle line of the Bollinger Bands indicator, and the Ichimoku Kinko Hyo indicator does not give any signals. This indicates a further flute in the range of 1.2815-1.2680. Pushing the pair in one of the parties can either further growth of the oil market, or today's Fed minutes.
