Oil will boost CAD

28 December, AtoZForex.com, London – The devalued crude oil market is poised for a recovery in 2016, offering potential upside opportunities to the currencies of oil-producing countries such as NOK or CAD.

Oil will boost CAD

“The oil market is over supplied, doesn’t look great in the short run, but there is still a recovery story for the second half,” said Dominic Schnider, said UBS Wealth Management’s head of commodity and Asia-Pacific Forex.

USDCAD, for example, is up 20% this year amid a rout in energy prices that sent oil prices down about 40% so far. Should oil prices recover, CAD may appreciate 5-10% which would translate back to around 1.28 level in the Loonie.

Historically oil cannot go much lower. US WTI and Brent crude oil prices are trading at multi-year lows around $38 due to a supply glut on the back of increasing production and as OPEC stands firm on its 30mbd production ceiling. Yet, demand is also estimate to increase in 2016, giving the upside opportunity to crude prices sooner or later.

Bearish AUD scope

While Goldman Sachs expects oil at $20 for a barrel, some oil analyst also called against OPEC’s World Oil Outlook report previous week saying crude oil prices will take decades to recover and still will not reach the peak of $107 seen in recent years.

Nevertheless, should the oil recovery materialise, AUD will still be suffering from mining sector. Year to date, AUDUSD is down 10%.

The outlook for the iron ore prices remains cheap on the back of an over-supplied housing market in China weighing on the demand for steel.

UBS is forecasting a high single-digit decline in the AUDUSD in the next 6 – 12 months due to a slowdown in trade and high current account deficit.

Consider reading: Morgan Stanley: Global GDP to shrink 5%

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