Oil and CAD Breakout

Signs of an oil output freeze pushed oil and the Canadian dollar to multi-month highs on Tuesday. The Australian dollar was the top performer while the yen lagged. Japanese PPI is due up next. In the Premium Insights, the GBPCAD short was closed at 1.8215 from the 1.8480 entry for 265-pip gain. GBPCAD's selloff has been partly triggered by oil-led ascent in CAD but late session losses in GBP have also helped. Ashraf has issued more details on future plans for this pair in the Premium trades.

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Two separate stories were unfolding on Monday. The main one was a rally in oil to the best levels since December. The gains came after an Interfax report suggested Russia and Saudi Arabia had bridged differences in oil output freeze talks. Official Russian comments later confirmed they had reached a consensus.

WTI crude broke above the 200-day moving average and the March highs to $42.25 per barrel. It later slumped 75 cents when API inventory data showed a 6 million weekly build in US supplies but that didn't stall the rally in CAD.

USD/CAD started North American trading at 1.2900 then plunged down to 1.2750. Of the reasons that so few market participants were willing to catch the falling pair is that the BoC meeting is tomorrow. Poloz will undoubtedly hike growth forecasts and is likely to say the output gap will close in mid-2017 rather than the end of 2017.

The other story was a recovery in the US dollar. The streak of seven consecutive declines in USD/JPY was finally halted in a modest 70 pip bounce.

The tougher dollar trade was EUR/USD. It appeared to be breaking out of the recent range as it touched 1.1465 – the highest since October. But a short time afterward it reversed and tumbled more than a full cent to 1.1345. The false breakout is a warning that dollar selling may have gone too far, too fast.

The calendar in Asia-Pacific trading slows. The only notable release is the March Japanese PPI report at 2350 GMT. The consensus is for a 3.5% price decline but the market will likely overlook the release given the recent moves in USD/JPY.