USD/CAD Canadian Dollar Higher After Less Hawkish FOMC Minutes

The Canadian dollar appreciated versus its U.S. counterpart after yesterday’s release of the minutes from the October Federal Open Market Committee (FOMC). The notes showed that there is still internal division on when to proceed with the first U.S. interest rate hike in a decade. The forecasts still call for a sooner rather than later hike, with December the favoured meeting in which the Fed will announce it, but the lower confidence in the sustained growth of the U.S. economy.

The USD/CAD depreciated 0.466 as the USD really lost strength as the Fed’s doubts infected the market that started to question the value of the dollar. The pair touched a high of 1.3369 in the past 24 hours only to start falling to current levels of 1.3290 despite the soft Canadian wholesale sales report.

Canadian wholesale activity fell in September by 0.1 percent when a gain of 0.2 percent was expected. While the rout in the energy market continues to pressure the economic recovery of Canada, there had been a few good signs of improvement, but the wholesale data could point to a weak third quarter heading into the end of 2015.

Oil has had a volatile 24 hours, but the price of West Texas is back to around the $40. The price of crude touched highs of 41.26 only to retrace into current levels of 40.58. The oversupply in the market is dictating pricing, even as global events could potentially threaten supply. Commodity prices seem to have for the most part decoupled from geo political events as the price of crude continues to fall after the Paris attacks.

Canadian indicators due Friday, November 20 at 8:30 am EST will decide the fate of the loonie. Inflation and retail sales and a mixed bag is expected by investors. Inflation is forecasted to come in at 0.1 percent as food prices keep advancing in contrast with gasoline prices. The core consumer price index is expected higher even after stripping out the volatile food and energy products with a reading of 0.2. The disappointing wholesale activity was a warning to investors to anticipate weaker retail sales in Canada. After two months of flat core retail sales, October’s data is expected to show a contraction of 0.3 percent. Auto sales are taken out of the core retail sales, and adding them back in shows a slight rise of 0.1 percent for the headline retail sales.

Canadian data could push the loonie higher versus the USD, specially after the FOMC minutes have almost put to rest the December rate hike, but the focus is now on what happens after the Federal Reserve raises rates and what pace does that monetary policy tightening take next year. The Fed has sent strong signals of the impending monetary action in December, and that has put investors and other central banks at ease, as they won’t have to intervene for the remainder of the year. The Bank of Canada is expected to hold monetary policy unchanged as the actions of the Fed will put downward pressure on the loonie and help with the export growth oriented goals.

CAD events to watch this week:

Friday, November 20
8:30am CAD Core CPI m/m
8:30am CAD Core Retail Sales m/m
8:30am CAD CPI m/m
8:30am CAD Retail Sales m/m

*All times EST
For a complete list of scheduled events in the forex market visit the MarketPulse Economic Calendar

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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza