Oil Slumps on Russia's Oil Stance

Oil posted its biggest percentage decline in nearly 2 months after reports indicated Russia is unlikely to lower production at the upcoming OPEC meeting. US crude dropped towards its 7-week trendline support, VIX had its first gap up in three months and equity indices fall in line with what we said on here 2 days ago. The loonie is the biggest loser of the last 24 hours on oil's drump and could be set for further declines ahead of Canada's CPI later on (more below on CAD). GBP drops as Labour's Corbyn had a strong showing in yesterday's debate with PM Johnson. A new Premium trade was posted during Tuesday's London session.

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Oil fell 3.3% on Tuesday to the worst levels since November 1. The news was that Russia probably won't agree to a production cut at the Dec 5 OPEC meeting, according to three Reuters sources. Some members have pushed for deeper cuts in order to get Brent back to $70 but many countries are facing budget pressures and haven't yet complied with earlier cuts.

The news isn't really a surprise but it landed in an oil market that was reeling. Crude touched a seven-week high early on Monday but quickly reversed lower and today's news was compounded mild unease about the US-China trade deal.

The weakness in oil boosted USD/CAD to the precipice of a 5-week high. A break of 1.3271 would clear the way to 1.3000 amnd the October highs near 1.3340. The rally was helped along by a speech from BOC senior deputy Wilkins noting that the central bank has room to maneuver on rates. She also highlighted that the economy was in good shape but the comment on rates captured the market's imagination and the implied odds of a Dec cut rose to 24% from 16% in the OIS market.

Looking ahead, Canadian CPI is due at 1330 GMT. It will be a critical report for the BOC ahead of the December 4 meeting. It's forecast to show a 1.9% y/y reading and a 0.3% m/m rise. The BOC's three core measures are all expected to remain close to 2%. The BOC faces more inflation and wage growth than other developed-market central banks and that's why they have been reluctant to cut. However a tick lower may further crack open the door to an insurance cut.