• US dollar weakness emerges on as inflation expectations fall to lowest levels in over two year; November Fed rate hike odds remain a coin flip
• Oil rallies for a third straight week on tightness concerns
• US oil rig count rises by 2 to 515

The one-way move with oil prices has finally started to provide some underlying support for the Canadian dollar.  The Canadian currency however is starting to show some signs of exhaustion as short-term risks to the outlook grow.  The short-term crude demand outlook might be poised to take a big hit but it won’t matter as the global market supply deficit will keep oil above the $90 level throughout the rest of the year.  Unless sentiment deteriorates significantly for the Canadian economy, loonie strength could persist. USD/CAD should have decent support from the 200-day SMA which resides at the 1.3465 level.

Canadian Economic Data/News:

Canadian house prices declined again as the impact from the BOC’s tightening cycle continues to weigh on the housing market.  Existing Canadian home sales dropped 4.% in August from July, much worse than the expected 0.2% dip.  Housing shortages however kept home prices supported, rising 0.4% to C$757,600.

The Canadian economy will likely see greater efforts by the PM Trudeau to address affordability concerns.  On Thursday, the PM unveiled plans to cut federal sales tax on construction of new apartment buildings.  Canada’s economy is softening, but optimism still remains weakness will happen in an orderly fashion.

Oil

After a third week of gains, crude prices are not seeing the typical profit-taking as the short-term crude demand outlook gets a boost from improving US and Chinese economic data.  Oil is surging but so far it really has been passed on to the consumer as gas prices are still below $3.90 a gallon.

$100 oil is not that far away, but that might not be a one-way trade as short-term risks to the outlook could shift consumer views and attitudes. The oil market is going to stay tight a while longer, but we might need to see a fresh catalyst to send oil to triple digits.

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