The Canadian dollar finished almost 1 percent lower against the USD on Wednesday on a day that saw plenty of action. The unexpected rise in crude inventories in the U.S. hit oil prices and the loonie, only to rebound shortly after ahead of the release of the minutes from the April Federal Open Market Committee (FOMC) meeting. After a mostly dovish statement published after the actual meeting, there was no other hints from policy members until the notes were released. The FOMC minutes showed Fed members are optimistic about growth, employment and inflation. The USD gained across the board. The CME FedWatch tool has the probability of a rate hike at 33.8% after stronger consumer spending data last week, hawkish Fedspeak this week and a strong endorsement for June in the minutes.
Energy ended the session in red after the USD rally took no prisoners. West Texas ended 1.55 percent lower trading at $47.61. The price of crude could not hold on to 2016 highs after the possibility of a June interest rate hike had already been taken off the table by the market.
The loonie did not have any economic data to guide CAD traders and most of the attention was on the U.S. oil inventories with the rest focused on what was thought to be an uneventful FOMC minutes.
The USD/CAD gained 0.946 percent in the last 24 hours. The pair broke through the 1.30 price level and is trading at 1.3024 after the Fed released the notes from the April 27 FOMC meeting. The comments from Fed members did not sink in to investors as Fedspeak had diverged from Fed facts since June. The more hawkish the rhetoric the worse the market was expecting the minutes to be. This time surprisingly they were aligned. The 2 to 3 rate hike comments could be a little too optimistic, but three weeks ago the Fed was already seeing an improvement in the economy of the U.S.
The lack of trust from investors toward central banks drowned out the warnings from Fed officials that have commented on the pessimistic view of the market towards the economic outlook. Only time will tell if the comments form the minutes get validated with positive fundamental indicators between now and the June FOMC.
No Canadian data is expected tomorrow. CAD traders will be watching the weekly unemployment claims for more signs of the strongest pillar of the U.S. economy and the release of the Philadelphia Fed manufacturing index that is forecasted to rise to 3.2 after a disappointing -1.6 last month. The Group of 7 meeting kicks off in Japan tomorrow. The main focus will be the host’s role in the price of the Yen as the economy is struggling to find a path to growth.
CAD events to watch this week:
Thursday, May 19
8:30am USD Philly Fed Manufacturing Index
8:30am USD Unemployment Claims
Friday, May 20
8:30 am CAD Core CPI m/m
8:30 am CAD Core Retail Sales m/m
*All times EDT
For a complete list of scheduled events in the forex market visit the MarketPulse Economic Calendar