USD/CAD rebounds as crude oil price falls to 1999 lows; coronavirus cases jump

The USD/CAD pair dropped by 60 basis points as investors reacted to the slumping crude oil price and surging coronavirus cases in Canada.

Crude oil price slump

Crude oil prices dropped sharply today as the market continued to worry about oversupply and low demand. Brent crude futures dropped by 0.70 per cent while WTI futures dropped by more than 15%.

According to analysts, the WTI futures contract slump was more pronounced because May contracts will expire tomorrow.

Another reason for the falling prices is that the US is running out of storage facilities. Indeed, a recent report said that storage facilities at Cushing, Oklahoma would soon run out of space.

This price action is happening a week after Russia, OPEC, and G20 members endorsed a plan to cut productionby more than 9.7 mb/d.

While the IEA endorsed the OPEC+ deal, analysts in the industry warn that it will not be enough. They attribute this to the low demand for oil products in a time when most people are staying indoors. They also warn that demand will be lower than what IEA predicted because it will take months or years for the economy to recover.

The deal signed by OPEC+ last week is also in trouble. Mexico has only accepted to cut production by 100,000 barrels a day, which is lower than the 400k barrels it was supposed to cut. At the same time, some big US producers have also opposed any plans to cut production.

The Canadian dollar is highly susceptible to oil prices because of the millions of barrels the country ships every day. Other oil currencies like the Mexican peso and Norwegian krone, fell by 1.8 per cent and 1.0 per cent respectively. The chart below shows how the three currencies have performed this year.

Canadian dollar falls as coronavirus cases rise

The Canadian dollar also declined as the number of coronavirus cases in the country continued to rise. According to Worldometer, Canada has confirmed more than 35,000 cases and more than 1,587 deaths.

Worse, the number of new cases has been on an upward trend. On Sunday, the number of new cases rose by 1,697, higher than 1,065 in the previous Sunday.

The disease has had a significant impact on the Canadian economy. The country has lost more than a million jobs while the unemployment rate has jumped to 7.8 per cent. The manufacturing PMI has dropped to an all-time low of 26.0.

Consequently, the Canadian economy is expected to slump into a recession. In a recent report, the IMF warned that the economy would slump by 6.2 per cent this year. Similarly, Canadian banks like TD Bank, Canadian, CIBC, Bank of Nova Scotia, and Bank of Montreal said that the economy would shrink by 24%, 18.4%, 10.7%, and 10% in the second quarter. This will be the worst economic slowdown since the 1960s.

USD/CAD technical forecast

The USD/CAD pair has been on an upward trend since January this year. The pair reached a YTD high of 1.4660 on March 19 and has been declining since then. It has then found support near the 38.2 per cent Fibonacci retracement level. The price is also above the 25-day and 50-day EMA on the daily chart. Therefore, the pair may resume the upward trend if it holds above the 38.2% retracement level.