Commodity crisis continues as oil price’ (WTI) dropped to the lowest level since 2009 at $36.60. This is mostly attributed to the failure of OPEC to cut down production which has led to a supply glut in the market. This downward trend is likely to continue in 2016 until the next OPEC meeting in June 2016.
Falling commodity prices might be good for consumers but it is a big problem for central Banks. This is because inflation rate might stay lower than expected. let us recall that the inflation target for major central banks is 2%, unfortunately, we are far from this target at the moment. Low inflation coupled with commodity crisis, the FED might have another reason to postpone the rate hike mostly expected by next-week.
However, Canada is one major economy which is actually under the pressure of falling oil price’. Canadian economy depends mostly on the revenue from oil sale; cheap oil affects the value of the Canadian dollar. Yesterday, USDCAD traded at 1.3622 which is the highest level in more than 1o years and Canadian Equity benchmark is also down.
The Bank of Canada (BoC) yesterday highlighted that they might introduce some monetary stimulus if commodity crisis persist. BoC is likely to introduce some quantitative easing, forward guidance as well as cut interest rate by at least 0.5%.
Technically, USDCAD after breaking the 61.8% Fibonacci retracement at 1.347 from the highs of 2002 at 1.623 , it is now opened to 1.53 which is the 88.6% Fibonacci retracement.