The USD/CAD touched multi-year highs (1.4316) as the price of oil continues to tumble as supply is far outstripping demand around the globe. The loonie was last at the 70 cent level in 2003. The currency showed some resilience after the crisis of 2008, but that was aided by firm energy prices. The slowdown in emerging market demand for crude coupled with the increased production levels with the introduction of new technology and the controversial pumping war drove the price of West Texas to below $30 earlier today.
The Canadian dollar is a commodity currency with crude oil exports making up 13 percent of Canadian exports. The loonie has fallen 40 percent since January 2013. The economic irony is that the strong CAD after the crisis eroded all the price advantages of Canada’s manufacturing base, which is now forced to rebuild in an adverse scenario as global growth is slowing down. The Canadian economy depends on the recovery of its largest trading partner to mitigate the losses of its energy exports, but as the U.S. economy shows no sign of fast recovery the Bank of Canada might be forced to cut interest rates in January.
The U.S. crude oil inventories will be published the Energy Information Administration on Wednesday, January 13 at 10:30 am and given the volatility in energy prices and the heavy correlation with the CAD investors need to be aware of the change in crude stockpiles.
