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USDCAD rose sharply on Friday on tumbling oil prices and the divergence in economic data released in the U.S and Canada. The pair surged to nearly two-month highs at around 1.32400, heading for the sixth session of closing higher in the last eight trading days.
The Canadian dollar has been under overbearing downward pressure from oil prices that have fallen to roughly two-week lows as concerns over a continuing global glut were fueled following news of rising Iranian exports and returning supplies from Libya and Nigeria.
According to market sources, Iran has raised its exports to more than 2 million barrels per day (bpd) in August, boosting its crude oil exports back near pre-sanctions levels. Compared to one year ago, the third-biggest OPEC producer doubled its export amount to 2.11 million bpd, with major importers located in Asia and Europe. Particularly, India’s daily oil imports from Iran in August are reported to have jumped to the highest in at least 15 years.
Adding to the signs of a persistent global surplus, output from Nigeria and Libya, whose crude exports have been hampered by domestic conflicts and political turmoil, is coming back into the market. The National Oil Corporation (NOC) announced that Libya is resuming oil exports from some of its main ports with exports resuming at Zueitina and Ras Lanuf immediately, and exports from Brega and Es Sider restarting as soon as possible. The country is likely to add 300,000 barrels a day into the global market.
Meanwhile, in Nigeria – Africa’s biggest crude producer, Royal Dutch Shell and Exxon Mobil have both lifted force majeures on Nigerian exports. Exxon Mobil Corp. has filled storage facilities at its Qua Iboe export terminal and is planning to resume shipments in the next two to four weeks. Royal Dutch Shell Plc is forecast to restart about 200,000 barrels a day of production flows within days.
Traders are eyeing weekly U.S. rig count data, to be released by Baker Hughes on Friday. Last week’s data showed U.S. drillers had added seven oil rigs in the week to Sept. 9, bringing the rig count to 414, the most since February.
Another factor that dampened the Loonie lower is the disappointing Manufacturing Sales report for July. According to Statistics Canada, manufacturing sales only edged up 0.1% in July to $50.7 billion, falling far below expectations of a 0,6% advance. Higher sales in the food, petroleum and coal products, and primary metals industries were largely offset by a decrease in the production of aerospace products and parts, and by lower machinery sales, the report said.
Meanwhile in the U.S, the Labor Department stated that consumer prices increased more than expected in August after being unchanged in July. The CPI index rose 0.2 percent last month since rising rents and healthcare costs helped offset a drop in gasoline prices. In the 12 months through August, consumer prices increased 1.1 percent, extending the rally after advancing 0.8 percent in July, pointing to a steady build-up of inflation that is heading towards to central bank’s target of 2%.
The core CPI, which strips out food and energy costs, also witnessed a jump of 0.3 percent last month, the biggest increase since February, after gaining 0.1 percent, one month earlier. The core CPI increased by 2.3% compared to the same period last year. This could help provide the Federal Reserve with confidence to consider a rate hike by the end of this year, after a raft of disappointing economic reports that were out yesterday wiped out chances for a move on rates next week.
Fig: USDCAD D1 Technical chart
USDCAD is on course to retest the 38.2% retracement at 1.33111 for the first time since March 25. Nonetheless, the pair may need to overcome major resistance at 1.32400 first. The market is being support by the 20-day and 50-day moving averages placed below the price action, and the penetration of the 50-day MA by the 20-day MA from below,helping consolidate the up-move. The RSI index has also soared to the level of 63.57. A breakout higher is expected.
Buy Stop at 1.32450, Take profit at 1.33000, Stop loss at 1.31500