The Canadian dollar got a double boost from market events on Wednesday. The price of oil surged after lower U.S. crude inventories were announced and the Organization of the Petroleum Exporting Countries (OPEC) announced alongside Russia the date for their oil output freeze in April. The USD got no support from the U.S. Federal Reserve Federal Open Market Committee (FOMC) statement. The remarks were dovish and were further driven home during Fed Chair Janet Yellen’s press conference.
The USD lost 1.8 percent versus the CAD in the last 24 hours. The pair touched daily highs at 1.34 at the beginning of the session and settled near lows at 1.3120 after the FOMC press conference. The CAD had a strong momentum ahead of the FOMC with the news of lower crude inventories in the U.S. and the freeze output meeting going forward.
OPEC Russia Set a Date for Freeze Summit
The Canadian dollar was dragged lower as volatility in the energy markets continues. Organization of the Petroleum Exporting Countries (OPEC) member Iran is willing to freeze production output of crude, but not at January levels as Saudi Arabia and Russia have been discussing. Iranian production was halved as the international sanctions that were lifted this year took its toll. The plan from Tehran is to boost production back to pre-sanction levels; around 4 million barrels a day from current 2.8 million barrels. The non committal nature of crude producers were dismissed today with the announcement of the date for an April meeting in Doha to discuss the details of the production freeze.
Patient Fed Clips USD Momentum
The release of the FOMC statement and economic projections put downward pressure on the U.S. dollar. The USD was weaker across the board versus majors. The statement by the U.S. Federal Reserve was interpreted by the market as more dovish than expected. Inflation expectations and corporate investments remains low, with the lone stand out being a strong employment component. The Fed had been optimistic in signalling 4 rate hikes in 2016 and now the forecasts have pegged them closer to the market expectations of 1 or 2 rate hikes. The USD could not capitalize on the European Central Bank (ECB) addition of stimulus to its QE program as the U.S. central bank has opted to remain patient and let the economy force a hike, rather than a proactive move.
Bank of Canada awaiting Federal Budget for Next Steps
A proactive central bank in 2015 the Bank of Canada (BoC) was almost pushed to cut the record low interest rate in 2016 as the year started with an awful drop in equities around the world. Global demand for resources hit the Canadian economy and reflected on the weak loonie. The BoC opted to hold in January and again in March but has now shifted the responsibility to steer to the economy to the Federal government with the release of the budget in March 22. There is some scepticism about the true effect a fiscal policy will have in a world that has grown addicted to monetary policy even as rates have gone negative.
The Canadian economy could face a turnaround even without a strong fiscal stimulus if the U.S. economy recovery continues and the price of oil keeps rising thanks to the efforts of the OPEC and Russia, but hopefully with some uptick in demand as well. All those factors are subject to market forces the fate of the Canadian economy is too highly dependant on them to succeed, with our without a strong fiscal policy.
CAD events to watch this week:
Thursday, March 17
8:30am CAD Wholesale Sales m/m
Friday, March 18
8:30am CAD Core CPI m/m
8:30am CAD Core Retail Sales m/m
8:30am CAD CPI m/m
8:30am CAD Retail Sales m/m
*All times EST
For a complete list of scheduled events in the forex market visit the MarketPulse Economic Calendar