CNS Canada — ICE Futures Canada canola contracts finished higher for the week ended Wednesday, tracking the U.S. soy complex for much of the period but ultimately shooting higher due to the Canadian dollar’s sudden free-fall.
The weaker currency helped improve domestic crush margins and also made canola more attractive to exporters pricing in U.S. dollars.
Investors were caught off guard by the Bank of Canada’s announcement Wednesday that it would cut the overnight interest rate by a quarter-point. The move pushed the Canadian dollar nearly two U.S. cents lower.
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The volatility in the Canadian currency may not be over, either.
Analyst Ken Ball of PI Financial in Winnipeg said the European Central Bank will discuss on Thursday whether or not to begin a round of quantitative easing, which would involve the release of more money in a bid to keep banks solvent and Europe’s economic recovery on track.
“That could cause the U.S. dollar to get quite violent,” Ball said, adding the move could cause the U.S. dollar to strengthen against the world’s other main currencies.
From a technical standpoint, the March canola contract gave every indication it would stay within its recently-established trading range of US$445-$455 during the week.
However, the Bank of Canada’s decision blew the lid off that trend, pushing the March contract C$4.80 higher compared to the same point the previous week (Jan. 14).
An oversupply of soybeans on the world stage limited the gains, said Ball, who noted some traders were still discussing whether a plunge to US$8 a bushel was possible.
“We may or may not go that low,” he said.
However, Ball said, there weren’t a lot of strong fundamentals affecting soybeans right now, leaving canola primarily at the mercy of the Canadian dollar.
— Dave Sims writes for Commodity News Service Canada, a Winnipeg company specializing in grain and commodity market reporting.
