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The Canadian dollar traded lower against its U.S. counterpart as the Fed rate hike loom ahead of the speech of Janet Yellen and as the oil market remained flooded. The Fed officials had indicated the probability of an adjustment in the monetary policy while the OPEC was set to conduct a meeting in September to address the existing glut concerns.

USD/CAD started the trading session at 1.29205 and dipped further at 1.29040. However, as seen in the graph below the pair found a recovery as the Saudi Arabia rejected the idea of an output freeze once again.

At 15:08 UTC, the pair broke the lower barrier (1) which meant that a significant price increase might happen. The pair had remained in a tight trading range (2) in the past few sessions and expected to continue this trend as the band showed no sign of expanding. The pair was still away from the moving average, thus the trend has not yet ended.

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Oil Glut Overhang

Earlier today, Iran oil minister Bijan Namdar Zanganeh mentioned the cooperation of Iran with the prospects of production freeze by the Organization of the Petroleum Exporting Countries. Speaking from an exclusive interview, the minister said that Iran will cooperate with OPEC to help the oil market recover, but expects others to respect its natural rights.

At the start of trading session on Friday, the oil price found a breather and recovered from its recent decline. However, as Saudi Arabia rejected the idea of output freeze, the commodity slumped. As of 06.58 GMT, U.S. West Texas Intermediate WTI crude declined 10 cents to trade $47.23 per barrel. Brent Crude oilprices at the International benchmark lost 21 cents to $49.46 per barrel.

Based on the statement released by Saudi Arabia Energy Minister Khalid Al-Fatih in his interview, the country does not believe that any significant intervention in the market is necessary. The OPEC has been convincing the major oil kingpins to consider freezing their respective output as the oil market was kept flooded.

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Minister Khalid stated that the market is moving in the right direction and added that only the forces of supply and demand can do the work for them. As the OPEC fails to come up with a unified decision, traders and other market players have been losing their confidence in addressing this glut concerns. It seemed the OPEC couldn’t stabilize the world market as long as the oil producers have their own concerns which need immediate attention.

Oystein Berentsen, managing director for crude at an oil trading firm Strong Petroleum in Singapore, shared, I do not expect the OPEC meeting in September to agree any freeze or affect the oil market in any significant way. This is because it appears key OPEC members remain more concerned about market share.”

Bottom Line!

In case this condition persists until the end of the year, the oil market would find it hard to find price recovery. As oil is pushed lower, the Canadian dollar tends to follow since it has a direct relationship with the commodities. Canada greatly relies on its great volume of oil exports to the United States. The economy of Canada depends on its 85 percent exports to the United States. On a daily basis, it produces around 2 million barrels of oil, and this is associated with the demand for Canadian dollars. The logic? If the demand of oil declines (in times of over supply), the producers tend to cut their average daily production, afterwards the demand for the Canadian currency declines.

In light of the of the downturns of oil, FSM News forecasts that CAD will likely stay in the red thread. Adding to this, a rate hike can result in dollar appreciation which could be another reason for the loonie to trade even lower. However, in case the major oil kingpins had a change of mind and the central bank still couldn’t foresee a stable US economy, the Canadian dollar will rebound eventually.