Canada Markets

Crude Oil Drags the Canadian Dollar Lower

Cliff Jamieson
By  Cliff Jamieson , Canadian Grains Analyst
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The sharp drop in crude oil has not been friendly to the Canadian dollar since early October, which closed lower for the third straight session while reaching its lowest level traded since mid-July. The lower study shows investors paring their bearish net-short position, as of Nov. 5, to the smallest position held since turning bearish in March, although it is likely they have since had a change of heart. (DTN ProphetX chart)

As seen on the attached chart, the turning point in the spot Canadian dollar was Oct. 1 after reaching a high of $.78204 CAD/USD, just two days before the high reached on the November Nymex crude oil contract of $76.41/barrel. Since then, the crude contract has fallen as much as $21.38/barrel as seen on the attached continuous active chart (28%), reaching its lowest point in 12 months.

Tuesday's loss in crude oil will be the largest daily loss seen since the slide began and comes despite headlines on Monday that said the Saudis would cut production as soon as December, while other OPEC nations may follow.

Retracement support on the continuous active chart points to the next level of potential support at $51.48/barrel, the 50% retracement of the move from the February 2016 low to the October high.

The downward-sloping parallel lines represent a trading channel that has governed the Canadian dollar trade over recent weeks. Current trend line support may be found at $.7516 CAD/USD, while the July low of $.7532 CAD/USD may first act as support and prevent a full retracement to the $.74979 CAD/USD 2018 low.

Investors in the Canadian dollar have been paring their bearish net-short position held since July, with the Nov. 5 data showing this group holding the smallest net-short position held of 2,632 contracts seen since turning short in March. When Nov. 13 data is reported by the CFTC on Friday, it is likely that this group has changed directions and contributed to this week's slide.

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Cliff Jamieson can be reached at cliff.jamieson@dtn.com

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