USD/CAD Loonie Stable After Dovish FOMC Statement

The U.S. Federal Reserve release its statement after January’s Federal Open Market Committee (FOMC) meeting in Washington. As the market had anticipated there was no change to the target range on the fed funds rate at 0.25-0.50 percent. Since there was no press conference scheduled at after the release of the statement, the document was going to be the main focus.

The Fed continues to highlight the improvement of the job market even as the economy faces tougher growth forecasts, but the rest of the economic indicators got a downgrade. Household spending and business fixed investment got a “moderate” from an earlier solid in December. The Fed expanded on its earlier comments of soft net exports and included the slow down of inventory investment. The rest of the statement follows a similar trend. Keeping the main points from the end of 2015 and only adding a more dovish outlook for indicators.

The USD/CAD gained 0.21 percent in the last 24 hours. The pair was range bound between 1.4140 and 1.4040 trading on the lower level ahead of the FOMC and return to the above 1.41 after the release of the statement.

The Federal Reserve unlike major central banks that had their interest rate announcements earlier in January like the European Central Bank (ECB), the Bank of England (BoE) and the Bank of Canada (BoC) did not have the benefit of a press conference so verbal intervention was never an option. The statement did include an addition about the central bank “monitoring global economic and financial developments and is assessing their implications” but then again isn’t that part of the job already?

Oil had a positive day as West Texas and Brent gained 1.97 percent and 3.61 percent respectively after the chance of a OPEC-Russia deal is still on the hypothetical table.

Oil’s rebound did put some downward pressure on the USD versus the CAD, but in the end the market had already priced in lack of action from the Fed with the March FOMC the next candidate for the first rate hike of 2016.

Next up for CAD traders is mostly U.S. data and the Canadian and American gross domestic product data on Friday. The price of oil will remain one of the main drivers of USD/CAD pricing as more details emerge on the state of U.S. shale companies and the Saudi comments regarding the IPO of Aramco but with neither side (OPEC or Non-OPEC) willing to compromise on a cut in production which adds to the uncertainty as the outlook for energy demand is weaker around the globe.

CAD events to watch this week:

Thursday, January 28
4:30am GBP Prelim GDP q/q
8:30am USD Core Durable Goods Orders m/m
8:30am USD Unemployment Claims
Tentative JPY Monetary Policy Statement
Friday, January 29
12:00am JPY BOJ Outlook Report
Tentative JPY BOJ Press Conference
8:30am CAD GDP m/m
8:30am USD Advance GDP q/q

*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