- The USD/CAD pair dropped after OPEC members reached an agreement with Russia to cut oil.
- The news from OPEC came shortly after Canada released the worst jobs report in years.
- The Canadian dollar also rose because of the overall US dollar weakness after weak US jobs data
The USD/CAD pair dropped by more than 25 basis points as investors reacted to weak employment numbers from the US and Canada. Investors also reacted to the latest action by the Federal Reserve and a deal reached between OPEC and Russia.
Canadian dollar boosted by OPEC+ deal
Canada jobs numbers disappoint
Canada has been struck by the current coronavirus pandemic. The country has confirmed more than 19,000 cases. As a result, the government has announced various measures, including lockdown in several vital cities like Ottawa.
The impact has been dire for Canadians. According to Statistics Canada, more than 1 million Canadians lost their jobs in March. This was worse than the 350k that economists polled by Bloomberg were expecting. It was also significantly worse than the 30k jobs that were added in February and the worst number ever recorded.
The participation rate declined to 63.5% from the previous 65.5%. This was the worst it has been since the 1980s. The rate measures the percentage of people above 15 years who are working or actively looking for work. The closely-watched unemployment rate rose to 7.8% from the previous 5.6%.
Meanwhile, like the United States, Canada has seen more people apply for unemployment benefits. According to the government, more than 4 million Canadians have applied for the claims. This is the highest number ever recorded.
The employment situation has worsened because most companies have been forced to stay out of business. Most oil companies have also reduced production and capital expenditure.
OPEC Oil deal boosts Canadian dollar
The Canadian dollar rose partly because of the ongoing OPEC meeting. The goal of the meeting is to address the current oversupply in the oil market. According to sources cited by CNBC, Saudi Arabia and Russia reached an agreement that will see supply cuts of more than 20 million barrels per day. This is a bigger number than the 15 million that Trump had proposed. In an interview with CNBC, Dan Brouillette, the Energy Secretary said:
“I think they can easily get to 10 million, perhaps even higher, and certainly higher if you include the other nations who produce oil, nations like Canada and Brazil and others. Easily, easily done.”
In response, crude oil prices jumped by more than 10% as investors waited for the confirmation.
WTI and Brent crude oil price soars after OPEC oil deal
The Canadian dollar benefits from higher crude oil prices because Canada is the fourth biggest oil exporter after the US, Russia, and Saudi Arabia. The country exports more than 3.5 million barrels per day, which brings in foreign exchange.
Fed action lowers the USD/CAD pair
The overall US dollar weaknesswas another reason why the USD/CAD declined. The dollar index declined by 70 basis points after the disappointing jobless claims and the action by the Fed. In a statement, the Federal Reserve said that it would unleash more than $2.3 trillion to support the economy. The bank will achieve this by channelling the funds to businesses and municipalities through banks. In a statement at the Brookings Institute, the Fed chair said:
“We are deploying these once lending powers to an unprecedented extent, enabled in large part by the financial backing of Congress and the Treasury. We will continue to use these powers forcefully, proactively, and aggressively until we are confident that we are solidly on the road to recover.”
The Fed has launched several bazookas to support the economy. It has brought interest rates to near zero, launched an open-ended quantitative easing program, and unleashed more than $500 billion to support the repo market.