The Canadian dollar continues to appreciate against the U.S. dollar thanks to the surge in oil prices in the last week. The USD has not regained its footing after the divided comments from U.S. Federal Reserve members that hint to multiple rate hikes or none depending on who is talking. The release of the Federal Open Market Committee (FOMC) minutes did little to add clarity. The USD has depreciated across the board as the market is heavily discounting the possibility of a rate hike given the weak signals of growth of the U.S. economy alongside the noncommittal comments found in the Fed’s official communication.
The price of oil has gained 11.44 percent in the last week thanks to growing rumours of a oil production freeze by major producers. The surprise drawdown of U.S. inventories on Wednesday boosted the price of WTI and Brent crude. U.S. inventories were forecasted to gain a modest 0.3 million barrels and instead ended up with a 2.5 million shortfall.
The CAD has surged on USD weakness but will face a big challenge as inflation and retail sales data will be released on Friday, August 19 at 8:30 am EDT. The Canadian releases will be the main dish before the end of the week, but the forecast is for a flat Consumer Price Index (CPI) and a small gain in core retail sales (0.3 percent). Next week’s calendar will offer less direction for the currency ahead of the Jackson Hole Central Bank Symposium in Wyoming.
The USD/CAD lost 0.679 percent in the last 24 hours. The pair is trading at 1.2771 after the combination of a weak USD and a bullish crude price has put the Canadian currency in levels not seen since before the Brexit vote. The lack of faith in a U.S. interest rate hike, let alone the “multiple” mentioned by some Fed members has evaporated the rate divergence even as the European Central Bank (ECB), Bank of England (BoE) and Bank of Japan (BOJ) are being forced into more unconventional programs to avoid falling into a negative growth trap.
The Bank of Canada (BoC) has spent 2016 on the wings but has received the support from the Federal Government which launched a fiscal stimulus program in March that afforded the central bank time to plan its next move. The fall was given as the timeline for impacts from those stimulus measures to be felt by the Canadian economy. With the deadline fast approaching the BoC is expected to reduce its hawkish view on the economy and worry about the balance between slow growth and high household debt facing Canada.
West Texas price gained 3.897 percent in the last 24 hours. The WTI is trading at $48.09 and continues its August rally after members of the Organization of the Petroleum Exporting Countries (OPEC) and other major energy producers have made comments hinting at an output freeze agreement. The OPEC meeting in Algeria at the end of September is being floated as a possible forum to discuss the matter officially. The oil output freeze had a positive effect earlier in the year when Russia and Saudi floated the idea, but it all came crashing down in the meeting in Doha as the OPEC internally could not commit in full. Oil production has broken output records since then and even a freeze might not be enough to expect higher prices as demand for energy has not grown as much as supply.
Market events to watch this week:
Friday, August 19
8:30am CAD Core CPI m/m
8:30am 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