The Canadian dollar depreciated after the release of the weekly U.S. inventories by the Energy Information Administration (EIA). Crude stocks surprised with a drawdown of close to 600,000 barrels sending the price of oil higher when the news hit the wire. The previous report had shown a massive drawdown of 14.5 million barrels due to tropical storms affecting production. The upward momentum of the black stuff was short lived as the report also showed a massive buildup of distillate fuels. Diesel and heating oil stocks rose by 4.6 million barrels when a more modest gain of 1.5 was expected. The Organization of the Petroleum Exporting Countries (OPEC) meeting at the end of September will discuss a potential oil output freeze but it is unclear how freezing at record high levels will keep the energy market stable after demand is failing to keep up with oversupply.
Lack of data releases in North America left the fate of the USD/CAD up to the price action dictated by the U.S. crude inventories and the various central bank expectations surrounding the Bank of Japan (BOJ) and the U.S. Federal Reserve next week. The USD was lower against most of the majors but the loonie’s correlation with energy prices drove the Canadian currency to a 6 week low versus the greenback.
The USD/CAD gained 0.204 percent in the last 24 hours. The pair is trading at 1.3199 and is close to daily highs of 1.3209. Despite U.S. dollar weakness after Federal Open Market Committee (FOMC) voting member Lael Brainard’s comments taking all the wind out of the September rate hike sails, mixed Canadian fundamentals and higher distillate product stocks took a tool on the loonie.
Monetary policy divergence amongst global central banks has hit a stumbling block. With an unwilling to hike Fed and the Bank of Japan (BOJ) and European Central Bank (ECB) reaching the limits of what easing tools can achieve Canada is caught in the middle. The Bank of Canada (BoC) has a limited runway at 0.50 percent. BoC deputy governor Carolyn Wilkins said today that investors need to adapt to a slow growth, low interest rate reality. While praised for its preemptive strikes in 2015 the central bank has now opted to show more patience and is one of the first to partner with a government fiscal stimulus program. Results from the package put forth by the Canadian government in March were promised to be assessed in the Fall. The economic landscape has not improved, so the estimated results are not encouraging as the BoC delivers a more dovish message.
West Texas lost 2.8 percent in the last 24 hours. The price of crude is trading at $43.49 after U.S. inventories of distillates rose unexpectedly by 4.6 million barrels. Crude inventories were lower than expected with a drawdown of 559,000 barrels but could only manage to give the price of crude a boost as the weekly inventories were released. It is unclear if the Organization of the Petroleum Exporting Countries (OPEC) meeting in Algiers will result in an agreement to cap oil production. Iran and Saudi Arabia have ramped up production ahead of the gathering of major producers but there hasn’t been a clear commitment although both agree something has to be done to stabilize oil prices, yet no one is stepping up or rather willing to step down in this tight market share battle.
Market events to watch this week:
Thursday, September 15
3:30am CHF Libor Rate
CHF SNB Monetary Policy Assessment
4:30am GBP Retail Sales m/m
7:00am GBP MPC Official Bank Rate Votes
7:00am GBP Monetary Policy Summary
7:00am GBP Official Bank Rate
8:30am USD Core Retail Sales m/m
8:30am USD PPI m/m
8:30am USD Philly Fed Manufacturing Index
8:30am USD Retail Sales m/m
8:30am USD Unemployment Claims
Friday, September 16
8:30am CAD Manufacturing Sales m/m
8:30am USD CPI m/m
8:30am USD Core CPI m/m
10:00am USD Prelim UoM Consumer Sentiment
*All times EDT
For a complete list of scheduled events in the forex market visit the MarketPulse Economic Calendar