The Canadian dollar recovered agains the USD on Wednesday starting after the release of the Energy Information Administration (EIA) report on crude oil inventories at 10:30 am EDT. The surprise drawdown marked the fourth consecutive drop and while not as massive as the previous report on September 21 in both cases the forecast called for considerable buildups. Today was full of oil chatter with the Organization of the Petroleum Exporting Countries (OPEC) meeting in Algiers wrapping up with big anticipation around a potential oil output freeze deal. Uncertainty about an agreement has come and gone with every statement from number of energy ministers present, but as it stands a deal might be announced with full details to be revelled in November at the OPEC meeting in Vienna.
Durable goods in the U.S. were flat and core durable goods had a 0.4 contraction, both came above expectations but still paint a grim picture for American manufacturing. Business investment has been slow to pick up and one of the main reasons the U.S. economy has lost some of the momentum in 2016.
U.S. Federal Reserve Chair Yellen stuck to the central bank’s rhetoric around the timing of the next rate hike. She insisted that there is no fixed timetable when addressing the House Financial Services Committee. Strong employment is now looked upon with some anxiety as it could lead to unbalanced growth and make the American economy overheat.
The USD/CAD lost 0.881 percent in the last 24 hours. The pair is trading at 1.3099 as the CAD is rising thanks to OPEC comments and U.S. Federal Reserve Chair Yellen’s testimony before Committee on Financial Services in Washington. The loonie had a horrible start to the year as the drop in commodity prices and the Chinese stock market sell off triggered risk aversion that depreciated the currency. The efforts from the OPEC and other major energy producers have stabilized the price of oil and brought it back up from lows of 24.98 in January to current levels around $40 per barrel. The tentative output freeze while short on details is expected to include production cuts that have boosted the price of crude and commodity currencies such as the Canadian dollar.
The CAD is caught between the rumbling coming out of Algiers as OPEC members are releasing contradictory statements while they supposedly attempt to reach an agreement to freeze oil output. The best case scenario so far is a tentative agreement to be presented, with final details to be delivered in the November meeting in the organization’s headquarters in Vienna.
The Canadian currency could appreciate further and break below the 1.32 price level after the news out to Algiers, but challenges remain as Bank of Canada (BoC) Stephen Poloz mentioned yesterday. A weak currency has not been the cure all for the Canadian economy as exports have not picked up as fast as needed, or fast enough to cover the gap left by the fall in commodity prices.
Finance Minister Bill Morneau delivered a strong statement with the release of the fiscal stimulus package in March, but if the economy fails to pick up there might be more to do by the Federal government as the central bank is reaching the point where it can only go into negative rates or use less conventional monetary policy tools to boost growth.
West Texas Oil has risen 4.972 percent in the last 24 hours. The price of WTI is trading at $46.36 after U.S. crude oil inventories showed another surprise drawdown last week. the U.S. Energy Information Administration (EIA) showed oil stocks had a 1.9 million barrel drawdown versus a forecasted 2.4 million buildup.
Oil traders were glued to their screens following the latest reports on the OPEC meeting in Algiers. Drama was high after Saudi Arabia and Iran seemed to have learnt nothing form the Doha debacle and started issuing contradictory statements even as the price of oil plummeted. A deal has apparently being reached to limit production to 32.5 million barrels a day with some exceptions given to countries that are still to reach their production goals. In that list is Iran, Nigeria and Libya. Saudi Arabia appears to have reached a compromise regarding the Iran exception as their all-or-nothing approach in the previous meeting effectively destroyed any chance of an agreement.
Market events to watch this week:
Thursday September 29
2:35am JPY BOJ Gov Kuroda Speaks
8:30am USD Final GDP q/q
8:30am USD Unemployment Claims
4:00pm USD Fed Chair Yellen Speaks
9:45pm CNY Caixin Manufacturing PMI
Friday September 30
8:30am CAD GDP m/m
9:00pm CNY Manufacturing PMI
*All times EDT
For a complete list of scheduled events in the forex market visit the MarketPulse Economic Calendar
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