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USD/CAD looks to 1.16 as IEA cuts 2015 forecast

H.S. Borji
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The US dollar climbed to higher ground against the loonie Friday, extending its more than five-year high after the International Energy Agency once again reduced its outlook on crude oil in 2015.

The USDCAD stopped short of 1.16 Friday, hitting an intraday high of 1.1592. It would subsequently consolidate at 1.1533, advancing 0.07 percent. The pair faces initial support at 1.1466 and resistance at 1.1573. A break above the initial resistance would pave the way for 1.16, a level not seen since June 2009.

In energy news, crude oil fell further below $65 a barrel Friday, with West Texas Intermediate plunging below $60 a barrel after the International Energy Agency downgraded its global oil demand forecast for the fourth time in five months.

The IEA expects global oil demand will increase by 900,000 barrels a day next year, 230,000 barrels a day less than last month’s forecast. Global daily demand is expected to average 93.3 million barrels, up from 92.4 million barrels in 2014, the energy watchdog said. This is likely to put more pressure on oil prices, which have plummeted more than 40 percent since the summer.

Brent futures declined $1.05 to $62.63 a barrel. WTI for January delivery fell $1.15 to $58.80 a barrel.

“The global economy remains weak, there is no wage growth there is little consumer spending and the main concern is deflation, all of which is feeding into each other,” said IEA report author Antoine Halffe.

On the currency front, the Canadian dollar is facing renewed pressures and appears poised to test new multi-year lows. Canada’s oil woes began after shale oil production in the United States boomed, making the world’s largest economy also the world’s biggest oil producer. Slowly but surely, Canada began to lose its biggest market for oil. Combined with high output levels from the Organization of the Petroleum Exporting Countries – the 12-nation oil cartel – oil prices are expected to decline further as supply outpaces demand by a wider margin. The oil price plunge will take the Canadian dollar down with it.

Long-term, however, persistently low oil prices could set back many producers, as the cost of production becomes too high. According to the IEA, the recent plunge in oil prices has had only a modest impact on production growth, “but steeper price declines could set back many producers.”

Cheaper oil prices are expected to help boost consumer spending over the short-term. More savings at the pump and on energy bills could boost consumer spending in other segments of the economy such as retail.

US retail sales increased 0.7 percent in November, the biggest gain in eight months, official data confirmed earlier this week. The boost coincided with a bigger than expected rise in incomes, according to the Labor Department, which announced last week average hourly earnings rose 0.4 percent in November.

In Canada, retail sales rebounded in September, climbing 0.8 percent after two consecutive months of decline. Statistics Canada will release October retail sales figures at the end of next week, followed by October GDP figures just before the Christmas holiday.

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