Super Wednesday turned out to be not so super after all for the Bank of Japan (BOJ) and the U.S. Federal Reserve. The market’s trust in central banks is low as policy makers are running out of ideas and more importantly ammunition for its stimulus programs. After the BoJ kept rates on hold and expanded its inflation target to give itself more room to reach the lofty promises of Abenomics, the Fed followed with what is turning to be a repeat performance of the 2015 interest rate cycle. High expectations at the beginning of the year, that slowly are corrected down until there is only one rate hike left.
Oil Rises After Surprise Drawdown
The Canadian dollar appreciated versus the USD as the Fed put strong signs that a rate hike is coming, but after the U.S. presidential elections. The rise of oil prices after the surprise drawdown in U.S. oil inventories made the move below 1.32 easier. Oil prices have been volatile but caught in a tight range as producers are battling with lack of demand. Organization of the Petroleum Exporting Countries (OPEC) and non-OPEC members have tried to come to an agreement once before but failed. The meeting in Algiers next week will be critical for the price of energy as there are clear hints that an agreement will be reached but only a temporary one freezing output at near record levels.
Growing Dissent at Fed on Path of Interest Rate
One of the biggest changes from previous Fed statements was the number of dissenters in September. Loretta J. Mester, and Eric Rosengren joined Esther George in voting against keeping rates on hold. Fed Chair Janet Yellen was quick to quash any rumours of disagreement between FOMC voting members. There are differences of opinion and the Fed does not incur in group think.
The USD/CAD lost 0.463 percent in the last 24 hours. The pair is trading at 1.3159 after the Fed’s FOMC statement kept rates unchanged in September. The Canadian dollar rose against its American counterpart after the release of the FOMC statement. The U.S. central bank held rates unchanged but with more dissenting votes and a clear signal that there is one rate hike on the schedule for 2016.
U.S. crude inventories fell by 6.2 million barrels earlier in the North American trading session. The unexpected drawdown boosted the price of oil and held the CAD in a range awaiting the Fed. After the Fed the loonie was able to appreciate despite mixed fundamentals. The Bank of Canada (BoC) kept rates unchanged in September but it is expected that if economic indicators don’t improve it will be forced to cut rates or use more unconventional monetary policy tools like negative rates.
West Texas rose 3.985 percent in the last 24 hours. The price of crude surged after both the Bank of Japan (BOJ) and the U.S. Federal Reserve kept rate changes on hold but signalled for future interventions. As the Organization of the Petroleum Exporting Countries (OPEC) meeting in Algiers draws closer there have been supporting comments signalling for the oil output freeze agreement to be close. Producers around the world continue to hit record highs ahead of the meeting and today’ the OPEC’s Secretary General said that the deal could last for one year.
The rest of the week will not have more blockbuster events but traders specially those that follow the Canadian currency will keep an eye out for inflation and retail sales data out of Canada on Friday, both are forecasted to have gained month over month after a disappointing 0.0 percent inflation and -0.8 percent in core retail sales.
Market events to watch this week:
Thursday, September 22
8:30am USD Unemployment Claims
9:00am EUR ECB President Draghi Speaks
Friday, September 23
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