Canadian dollar extends meteoric rise as manufacturing PMI disappoint

Canadian dollar extends meteoric rise as manufacturing PMI disappoint

  • The Canadian dollar rose by more than 1% after manufacturing PMI data from Ivey disappointed.
  • Focus remains on the ongoing negotiations between Saudi Arabia and Russia on oil supplies.
  • The US dollar has also been weak across the board as Coronavirus curve starts to flatten.

The Canadian dollar strengthened against the US dollar even after Ivey released weak March manufacturing PMI data. The data showed that manufacturing activity in Canada grew at the slowest pace ever recorded.

Canadian dollar rises against the USD

Canadian dollar rises

Canada manufacturing PMI disappoints

According to Ivey, the Canadian manufacturing PMI declined to 26.0 in March. This was lower than February’s expansion of 54.1. Economists polled by Bloomberg were expecting the PMI to decline to 41.0.

The seasonally-adjusted manufacturing employment index declined to 26.8, which was lower than February’s 54.7 while inventories too dropped. The same was the case with supplier deliveries and prices.

These numbers were worse than those released by Markit and RBC Capital Markets. The data showed that the manufacturing PMI dropped to 46.1, which was the lowest level recorded. In the report, Markit attributed the slowdown to the disruptions caused by Coronavirus. In a statement, Tim Moore said:

Canadian manufacturers reported the steepest downturns in production, new orders and employment for at least nine-and-a-half years in March. Shrinking customer demand was almost exclusively attributed to production stoppages at home and abroad amid emergency public health measures to halt the COVID-19 pandemic.

Focus shifts to crude oil

Crude oil is part of the reason why the Canadian dollar has risen against the US dollar. As the fourth-biggest supplier, crude oil plays an important role in the Canadian economy. As a result, the country was hit hard when the prices fell by more than 50% in March.

The positive momentum comes at a time when the price of crude oil is recovering. The price of Brent and WTI has risen by more than 30% in the past five days as negotiations on supply cuts intensify. The US has demanded cuts of more than 10 million barrels. This will help ease the oversupply that is in the oil market. Still, it will leave the world oversupplied by more than 2 million barrels a day.

Brent and WTI crude oil rises

Brent and WTI crude oil soars

The current issues started last month when Russia refused to cut oil production. Saudi Arabia, the de facto leader of OPEC, responded by boosting production and lowering prices. This made crude oil fall by more than 30% in a single day.

The current impasse is that Saudi Arabia has insisted that all oil-producing states must join-in and cut supplies. This includes non-OPEC members like Norway, Canada, and the US. If they don’t, the country, which has the lowest production costs, could keep its tap flowing. Fortunately, there are signs that these countries are doing that. On Friday, Baker Hughes reported that Canada and the US exited the most wells since 2016.

US dollar weakness

The Canadian dollar has also declined partly because of the overall weakness of the US dollar. The dollar index has declined by more than 1% since yesterday. The declines are partly because of the weak nonfarm payrollsand jobless claimsdata that were released last week. Just today, a number by the Bureau of Labor Statistics showed that there were more than 6.9 million job openings in February. This was lower than the previous 7.7 million.

It is also because of the Fed’s policy of open-ended quantitative easing, which has been equated to large-scale printing of money. Most importantly, it is because risks related to Coronavirus have eased a bit.

Canadian dollar technical outlook

Canadian dollar technical outlook

In the four-hour chart, the USD/CAD pair has been moving downwards since peaking at 1.4670 on March, 19. Since then, the pair has been making lower lows, and is trading between the 50% and 38.2% Fibonacci Retracement levels. The 25-day and 50-day EMA have made a bearish crossover. This means that the pair may continue moving lower. Still, the pair could see significant volatility as oil negotiations proceed.

By Crispus Nyaga
Crispus Nyaga is a finance analyst and trader with more than 7 years industry experience. He's contributed to some of the leading financial brands in the world including Seeking Alpha, MarketWatch, Forbes, and Crispus has an excellent understanding of global macroeconomic and geopolitical issues, is a big fan of golf, and lives in Nairobi with his wife, son, and nephew.

Investing is speculative. When investing your capital is at risk. This site is not intended for use in jurisdictions in which the trading or investments described are prohibited and should only be used by such persons and in such ways as are legally permitted. Your investment may not qualify for investor protection in your country or state of residence, so please conduct your own due diligence. This website is free for you to use but we may receive commission from the companies we feature on this site. Click here for more information.