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Oil Slump Drags Loonie Lower; USD/CAD Cuts Losses

By Yasin Ebrahim

Invesing.com – USD/CAD moved off session lows on Thursday as the loonie followed the slump in oil prices amid ongoing worries over whether OPEC and its allies will be able to agree a production cut large enough to offset the impact to demand from the Covid-19 pandemic.

USD/CAD was flat to $1.4009, well above session lows of $1.3920.

Against reports suggesting OPEC and its allies could agree to cut production by up to 15 million barrels per day, Goldman Sachs (NYSE:GS) warned that deeper cuts are needed to offset the average demand loss of 19 million barrels per day between April to May.

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"Ultimately, the size of the demand shock is simply too large for a coordinated supply cut, setting the stage for a severe rebalancing," the bank said.

Direction in USD/CAD was also dominated by the Federal Reserve unveiling $2.3 trillion in measures to create a support lending program aimed at cushioning the economic fallout from the Covid-19 pandemic - a move which many see weakening the dollar.

The move from Fed overshadowed Canada's unemployment rate, which went from 5.6% in February, near a 40-decade-plus low, to a near-decade high of 7.8% in March, RBC said, warning the labor market is set for more pain.

"Our latest forecasts assume that the unemployment rate will average 14.5% in the second quarter, double March’s 7.8% rate," RBC added.

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