Canadian Dollar and Crude Oil Stabilize as Iran Oil Sanctions Remain in Force

Iran Deal

The Canadian Dollar traded at a four-month low against the US Dollar on Monday after a historic deal limiting Iran’s nuclear program was announced on Sunday.

The agreement, reached in Geneva between six world powers and Iran, commits Iran to restrain its nuclear activities in exchange for an easing of sanctions.

Crude Oil Reaction

Crude-oil futures traded sharply lower on news of the deal but recovered as it became clear that Iran will not resume exports at prior levels.

US Energy Information Administration (EIA) data states that Iran's oil exports fell to 1.5 million barrels a day in 2012 as the United States and the European Union tightened sanctions.

Related: Canadian Dollar Sell-Off Pauses After CPI and Retail Sales Data

According to the White House, oil exports from Iran will be held to about 1 million barrels a day under sanctions that remain in place.

A fact sheet about the accord published on the US State Department’s website stated: “In the next six months, Iran’s crude oil sales cannot increase. Under this first step, the EU crude oil ban will remain in effect and Iran will be held to approximately one million bpd in sales, resulting in continuing lost sales worth an additional $4bn per month, every month, going forward.”

Canadian Dollar

The loonie, as the Canadian dollar is known, owing to the bird on the Canadian $1 coin, historically has a strongly positive correlation with crude oil.

This is due to the fact that Canada is one of the ten largest oil producers in the world. The Canadian dollar is known as a 'commodity currency' along with the Australian Dollar and New Zealand Dollar. The price of oil is often looked to as a leading indicator for the price movement of the Canadian Dollar.

USD/CAD Daily Chart

Looking at the USD/CAD daily chart we can see that the Canadian Dollar is somewhat indecisive after initially selling off sharply on the Iran news. Resistance lies overhead at the prior high of 1.0606, while a well defined trendline forms potential support to the downside.