A secular look at oil and the loonie

Today oil took another drubbing with most other commodities, as the slowing global economy met systemic shocks from collapsing speculative frenzy in China and a surprise “No” in Greece. As dramatic as drops have been so far, it is possible that mean reversion trends here are just getting started.

As shown in this long term chart of West Texas Crude since 1990, a retest of the 2009 lows for crude below $40 is well within reason.  Now that oil is firmly below the secular bull channel that supported it since 2001, a break below the prior cycle low of $37 in 2009 would confirm a fresh secular bear that can weigh on prices and producers for years.

WTIC June 30 2015

The Canadian (and Aussie) dollar dumped along for the ride as short sellers renewed bearish bets on commodity centric economies and odds increased that the Bank of Canada will cut rates again this month.  See:  Would Stephen Poloz risk ‘inflaming’ Canada’s housing and debt with another rate cut.   Unfortunately, the answer is yes, because all central banks ever had to work with was cutting rates as a tool to encourage risk-taking. But because they used that prod repeatedly and recklessly for the past 15 years,  it is virtually impotent now.  The greatest effect is likely on the currency.  The loonie could easily dive toward the .70U$ area in the process (as shown below).
C$ June 30 2015

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