Disappointing Data Questions Fed Decision to Hike as USD Tumbles
The loonie is rising today thanks in no small part to two factors. The softer ISM Non-manufacturing data has slowed down and missed expectations at 53.5. The price of oil continues to rise as Organization of the Petroleum Exporting Countries (OPEC) and non-OPEC are teasing some sort of agreement to curb production. Higher energy prices and a weaker U.S. economy has given the loonie a foothold as it broke through the 1.38 price level.
The USD/CAD has depreciated 1.60 percent in the past 24 hours. The currency pair hit a session high of 1.4103 and is trading at 1.3804 after trading below 1.38 for a brief moment. The strength of the loonie has more to do with the weakness of the USD ahead of Friday’s employment figures. The softer economic indicators have put a big question mark around the U.S. Federal Reserve’s forecast of 4 rate hikes this year. Give the macro economic environment even 2 would be a stretch and there are some analysts that are even calling for negative rates.
A strong private payrolls report at 205,000 new jobs was not enough to offset the ISM non-manufacturing PMI that came in below expectations at 53.5. The NFP on Friday will give investors a better idea on what the health of the U.S. economy and what steps the Fed might take to boost growth. The fact that this is an election year already limits the amount of market intervention from the Fed without showing any political bias.
West Texas and Brent crude both saw massive surges despite growing inventories in the U.S. The chatter that has built up around a potential agreement between OPEC and non-OPEC nations remains a pipe dream, but one the market is currently entertaining. The Russian central bank continues to price oil between $20 to $40 and the Russian government is coy on given any clear hints they would enter an agreement. Saudi Arabia and Iran remain question marks as they battle for marketshare within OPEC will be the highlight of 2016, so it is unclear if they can put their objectives aside for the good of the organization.
The CAD will trade tomorrow with little cover from economic data. Canadian employment data will be release at the same time as the American counterpart. The market will be obsessing on the NFP numbers given the potential implications, but Canadian numbers will play a big part on how the loonie ends the week. After a strong December Canadian jobs are expected to slow down, but keeping the unemployment rate steady at 7.1 percent.
CAD events to watch this week:
Thursday, February 4
8:30am USD Unemployment Claims
Friday, February 5
8:30am CAD Employment Change
8:30am CAD Trade Balance
8:30am CAD Unemployment RateUSD
8:30am USD Non-Farm Employment Change
8:30am USD Trade Balance
8:30am USD Unemployment Rate
*All times EST
For a complete list of scheduled events in the forex market visit the MarketPulse Economic Calendar