The USD/CAD is lower after the debate between Fed members decreases the probability of a rate hike in December. Employment data in the U.S. was strong, but inflation and retail sales have shown tepid growth that while not a deal breaker will do little to convince FOMC voters on the fence about a December rate hike. The loonie has been range bound around 1.3330 while expectations of a stronger rate hike signal did push the price to 1.3370. Interest rate divergence anticipation has been driving the USD/CAD price as commodities have offered little support for the Canadian currency.
The FOMC committee had a small mention about the Canadian economy:
Foreign economic growth appeared to have improved somewhat in the third quarter following two quarters of slow growth. Economic activity rebounded in Canada after disruptions to energy production earlier in the year,
The price of oil has dragged the CAD lower. Crude prices continued the downward trajectory from last week, only to reverse course and end up with a gain after almost heading below the $40 price level. The uncertainty and tensions that arose after the Paris attacks and the G20 meeting in Turkey have complicated the pricing of energy. The attacks put a premium on crude as supply might be constrained, but on the other hand thanks to the OPEC the world is awash in plenty of crude with tankers full of oil sailing around the world which puts downward pressure on the price of a barrel.
After the release of the October Federal Open Market Committee (FOMC) statement on October 28 the case for an interest rate hike has been growing after the setback of the September FOMC. Not having a press conference the market was going to keep the focus on the statement and the Fed capitalized on the opportunity by adding the “next minute” language that put the rate hike back on table.
The minutes from the October FOMC were released with similar anticipation for investors and analysts to scan them for clues on the Federal Reserve’s next move.
The minutes show Fed members continue to debate back and forth on the right call to make for the U.S. economy. The notes some members are still wary of hiking too soon and stifling the momentum of the economy. The flip side of that argument is made by members who believe the Fed could further miscommunicate its intentions to the market and take a bigger credibility hit that could jeopardize monetary policy going forward. The risks of keeping the rate unchanged are outweighing the potential damage done by hiking sooner rather than later but the fact that there is still internal debate reduces the probability of a rate hike in December.
*All times EST
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