OPEC inaction = Currency volatility: Loonie at 11 year low versus USD

One of the factors which brought down longtime Canadian Prime Minister Stephen Harper in Canada’s October national election was the weak Canadian Dollar. After surpassing the USD as recently as early 2013, the Loonie had gone on a prolonged nosedive ever since, and was worth less than 80 cents US once Canadians went to the polls and voted en masse for change – and for Justin Trudeau, the handsome and charismatic son of onetime Prime Minister Pierre Elliott Trudeau as their new leader.

Although Harper may have been responsible for some of Canada’s economic and social problems, he clearly was not the cause of the fall in the Canadian Dollar (or ‘Loonie’). Proof of that has come in the past seven weeks since the election. The Loonie has continued to tumble for the same reason it was prior to the election – weak oil prices.

Trading action on Monday was another example of that. Once news broke of OPEC’s decision to not limit oil production in the face of weak global demand, oil prices dove more than 5% with Brent Crude falling to a six-year low in London trading.

Continuing the domino effect, weak oil prices led to (another) run on energy stocks, and increased volatility in currencies tied to commodity prices – most notably the Australian and Canadian Dollars.

USDCAD five year chart

Canadian vs. US Dollar past 5 years. Source: Google Finance.

The USDCAD rose nearly 1% Monday to hit an eleven year high, marking an eleven year low for the Loonie which fell briefly under 74 cents US for the first time since mid 2004. The Australian Dollar did drop a full percentage point in value, to 72.6 cents US.

And the crystal ball forecast seems to be seeing even more volatility. Low oil prices mean political unrest in oil rich countries, which means more speculation and volatility in financial markets.

Should be an interesting trading week.

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