The Canadian dollar has outperformed in recent weeks. That’s despite ongoing weakness in crude oil, which is Canada’s main export commodity. So, what’s driving the CAD higher? Expectation about tighter monetary conditions in Canada, after the Bank of Canada delivered a strong hint a couple of week about raising interest rates. Those expectations could be revised however in the event crude oil falls furthers and stays weak, or if incoming data deteriorates once again.
If shale is so good then why are the oil stocks so bad? Downgrades across the energy sector raise real questions about the ability of shale producers to operate with prices in the low $40s per barrel. It also questions the perception that shale operators have become so efficient that they can operate at almost any price. While the downgrades are coming fast and furious, it is probably a sign that the market has bottomed out.
A renewed sell-off in crude oil prices amid oversupply concerns effectively dented risk sentiment on Wednesday with global stocks exposed to heavy losses as oil bears pressured equity bulls. European markets were punished by the sharp decline in energy shares and the bearish contagion was swift to contaminate Wall Street which concluded mostly lower. Although Asian stocks edged cautiously higher during Thursday’s trading session, the lack of appetite for risk may limit upside gains.