The Canadian dollar was slightly lower on Wednesday after the Bank of Canada (BoC) held the benchmark interest rate unchanged at 0.50 percent. Oil prices bounced 1.4 percent and helped the loonie stay near under the 1.29 trading level for most of the day.
The Canadian central bank said that current economic conditions do not warrant a change in monetary policy at this time. While not exactly hawkish Governor Poloz did not use the statement as a dovish tool to depreciate the CAD. The loonie has been moving higher against the USD after the soft data out of the U.S. has lowered the possibility of a rate hike by the Fed in September.
Oil is trading at a weekly high on the back of comments from producers that hint at an oil freeze agreement being in the works. The one day delay on the weekly U.S. inventories usually released on Thursday meant that future prices rose ahead of oil stock data due on Thursday at 10:00 am EDT.
The USD/CAD gained 0.44 percent in the last 24 hours. The pair is trading at 1.2899 after the decision by the Bank of Canada (BoC) to keep rates unchanged in their monetary policy meeting. The loonie got some support from rising oil prices after mixed messages from Organization of the Petroleum Exporting Countries (OPEC) members.
The Bank of Canada acknowledged the first half of the year challenges and its negative impact on the economy. Exports fell more than forecasted and household debt challenges remain in Vancouver and Ontario as housing prices remain elevated. The central bank balanced the negative with a positive forecast for the second half of 2016. The BoC expects a rebound of the Canadian economy in line with a global growth gain.
The central bank is in a similar scenario to the end of last year. With a Fed rate hike looming, if Fed members are to be believed, the BoC could keep rates unchanged in 2016. A failure of the American central bank to raise rates at least once in 2016 could force its Canadian counterpart to cut its rate early in 2017. The possibility of a September rate hike by the Fed has been shrinking as more economic data is released and once again December seems like the most likely candidate.
The price of oil rose 1.403 percent in the last 24 hours. Oil has been volatile this week after OPEC members and Russia have commented on a possible oil output freeze. Iran is supportive of a move that would stabilize prices, but will continue to aim for its pre-sanction levels by upping production. News has driven the price of West Texas to $45.16 after a daily low of 44.26. Inventory data on Thursday will put the market’s confidence on the OPEC-Russia deal to the test. Oil producers have broken their production records consistently, even after the failed March output freeze summit in Doha. Global demand has been weak, and the oil glut has send oil prices lower if not for the verbal intervention of producers.
CAD traders will be on the lookout for the results of the U.S. oil inventories as the price of oil is heavily correlated to that of the Canadian currency. The CAD will close the week with employment data. The Canadian economy is expected to add 16,000 jobs after the surprise loss of 31,000 in June.
Market events to watch this week:
Thursday, September 8
7:45am EUR Minimum Bid Rate
8:30am EUR ECB Press Conference
8:30am USD Unemployment Claims
11:00am USD Crude Oil Inventories
Friday, September 9
8:30am CAD Employment Change
8:30am CAD Unemployment Rate
*All times EDT
For a complete list of scheduled events in the forex market visit the MarketPulse Economic Calendar