NAFTA remains a bigger puzzle than the oil market given that its fate its tied to the Trump Administration. The victory of the tax reforms is now in the past and NAFTA could provide a rolling thunder for the administration as ending the agreement could be done unilaterally by the White House. The effect is hard to quantify for Canada and even the United States which is why Poloz has chosen not to speculate until a reaction is needed. The decision of the BoC will take that uncertainty into consideration so it would also not a surprise if the central bank decides to stand pat, despite the strong indicators of late.
The Canadian economic calendar will be brief with a focus on housing. The Bank of Canada (BoC) will release its business outlook survey on Jan. 8 at 10:30 am EST. Housing starts will be published on Jan. 9 at 8:15 am EST, building permits on Jan. 10 at 8:30 am and the New House Pricing Index (NHPI) on Jan. 11 at 8:30 am EST.
The price of West Texas Intermediate is trading at $61.45 per barrel. The oil rally is finding it hard to continue as U.S. production is ramping up. The Organization of the Petroleum Exporting Countries (OPEC) agreement with other major producers stabilized prices and its extension to the end of the year set the foundation near the $50 price level, but disruptions based on weather and geopolitical events have driven the price to two-year highs.
Iranian unrest, storms in the United States and the outage of the Forties pipeline are keeping prices at current levels, but demand has remained stagnant and prices could fall once again once those temporary issues are sorted and higher production from Brazil, Canada and the U.S. threatens to put downward pressure on the price of energy.
U.S. crude inventories to be release on Wednesday, Jan. 10 at 10:30 am EST will shed more light on demand and will impact the price of a barrel of oil as US shale production is ready to kick into a higher gear in 2018.