The USD/CAD dropped 0.54 percent on Monday. The Canadian dollar rose on the back of a strong oil rally after armed conflict in Libya continues to escalate. US sanctions and the OPEC+ have lifted oil prices, and with a potential disruption to Libya’s output crude reached 5-month highs.
The greenback lost its edge against majors as investors ahead of the Fed’s March FOMC minutes, which are expected to bring even more dovish comments from the central bank. The loonie has been under pressure with mixed economic indicators and the ghost of NAFTA 2.0 not being ratified hanging over the currency.
The economic calendar for this week is light on domestic events with housing data already out with some improvement, the next highlight will be Deputy Governor Wilkins speech on Thursday.
The OPEC meeting in Vienna will have some influence on crude prices as Saudi Arabia could use the opportunity to signal its willingness to extend the OPEC+ crude output cut before the group’s meeting in May.
OIL – Libyan Conflict Escalation Triggers Supply Anxiety
Oil rose at the start of the week with the dollar on the back foot and the escalation of the armed conflict in Libya. Supply concerns are keeping crude prices bid with US sanctions and the OPEC+ agreement being the factors pushing crude higher.
Energy demand remains stable and with the US-China trade deal close to an official announcement a rebound is expected. Rising US production is the main factor putting downward pressure against rising crude, but for now supply anxiety has more weight on investors as spot pricing showed contango.
The fighting in Libya is not near oil producing fields, but if the conflict continues it could end up reducing crude supply. The largest oil field Sharara is near its normal production after being shut down for three months due to a salary dispute.
Saudi energy minister reassured markets on Monday that the OPEC+ ministerial meeting in May will be crucial to reach a decision to extend the production cut agreement. The OPEC has been the target of pressure from the White House in order to stop limiting production and let prices go lower. Rumour circulated that Saudi Arabia could retaliate by diversifying oil prices away from the US dollar, but those statements were denied by the Saudi energy ministry.
GOLD – Gold Rises on Dollar Weakness
Gold rose 0.49 percent on Monday after the US dollar lost momentum ahead of heavy expectations the FOMC minutes from the March meeting will bring more dovish rhetoric forward. The softness of the dollar was a positive for gold, but with macro risk events this week the metal will be bid in case investors need a safe haven.
Gold prices broke the $1,300 price level but are once again under it despite a full economic and geopolitical agenda this week. Brexit fatigue and continued dovish rhetoric from central banks will not add volatility to the market.
Central banks have been large buyers of gold and stats released this week showed the People’s Bank of China added 360,000 ounces last month to add its reserves now clocking 60.62 million ounces. Gold is seen by some central banks as an alternative to diversify their reserves away from the US dollar. In the case of China, bold purchases could add some leverage in the ongoing trade negotiations with the US.
STOCKS – Stocks on Wait-and-see Ahead of Earnings
Stocks were uninspired on Monday as lack of data and no word on a US-China trade deal breakthrough puts investors in wait-and-see mode. The Fed minutes to be released this week will bring more dovish details on the reasons for the central bank to pause its interest rate hike path, but no new developments. Global growth concerns are easing as US-China appear to be close to a deal, but without details and with veiled threats if the deal is not best markets are threading carefully.
US earnings will start to trickle in starting on Wednesday with forecasts calling for a drop in results as geopolitical headwinds have begun to impact companies negatively. With various recession indicators turning red and mixed economic data out of the US, short term estimates are key on how corporations will be able to navigate choppy waters.