OPEC Oil Deal Fails to Help NOK and CAD Exchange Rate Forecast

September 29, 2016 - Written by Tim Boyer

STORY LINK OPEC Oil Deal Fails to Help NOK and CAD Exchange Rate Forecast

Canadian Dollar, Norwegian Krone Exchange Rates Gain Initially on OPEC News

Both the Canadian Dollar (CAD) and Norwegian Krone (NOK) recorded gains in response to some developments in the commodities market.

The price of a barrel of Crude Oil spiked during overnight trading following the announcement from OPEC (the Organisation of the Petroleum Exporting Countries) that it had agreed to limit the output levels of its member countries.

This shift saw the 'Loonie' gain by 2 cents on the Pound (GBP CAD) and rally against several of its other main rivals.

Oil Fails to Hold Gains, Canadian Dollar Exchange Rates Fall Back

However, the initial gains in Canadian Dollar (CAD) and Norwegian Krone (NOK) exchange rates weren't set to last and both currencies slipped over the course of Thursday.

Brent Crude has been on the slide all day, drifting lower from above $49 during early trading to just above $48 a short time ago as analysts pored over the details of the deal. The experts at Capital Economics were particularly unimpressed, stating earlier that,

‘Iran, Libya and Nigeria will be allowed to increase production to “maximum levels that make sense”. Given that these three countries are aiming to increase cumulative output by about 1.5m bpd by the end of the year this implies that either the “real” OPEC output quota is closer to 34.5m bpd or that the rest of OPEC are willing to cut output by enough to offset these increases. In practice, most of the burden of cuts would fall on Saudi Arabia, which we doubt will be altruistic enough to substantially cut its own output to benefit the rest of the group. As such, we suspect that the actual OPEC production ceiling will turn out to be considerably higher than 32.5m - 33m bpd.’

Pound Sterling Forecast to Gain on CAD, NOK

The note from Capital Economics went on to forecast that, ‘even assuming no increase in output from Libya and Nigeria, the seasonal decline in Saudi Arabia’s production from summer to winter (about 350,000 bpd last year) would be enough to bring the group’s output within its target range. As a result, supply would be no lower than it otherwise would have been.’

With no contraction in real terms expected following the deal, currency analysts suggest that the Pound Sterling (currency : GBP) may go on to recoup some of its recent losses against the oil-driven Norwegian Krone (currency : NOK) and Canadian Dollar (currency : CAD).

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