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Oil Slump Drags Loonie Lower; USD/CAD Cuts Losses

By Yasin Ebrahim – 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.

"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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