USD/CAD Loonie Mixed Ahead of FOMC

Canadian manufacturing struggles to regain traction after March manufacturing sales fell 0.9 percent. The silver lining was that economists were expecting a worst fall by 1.9 percent but still show a decline in 16 of 21 industries. The better than expected data was offset by a downgrade of last month’s figures who is now a 4.0 percent drop instead of the previous 3.3 percent. The two monthly falls combined set a new low for 2015.

The drop in oil prices continues to hit the Canadian economy and ironically some of the surge in prices this month is because of lost Canadian output given the Alberta wildfires. Output disrupting drove energy prices to 2016 highs

The Canadian dollar was heading towards 1.30 after the release of the negative sales data, only to receive a boost from oil prices and USD weakness that put the CAD close to 1.29 at the end of the session.

The USD/CAD gained 0.043 percent in the last 24 hours. The gains seemed to be higher after the disappointing manufacturing sales data in Canada and the positive inflation numbers out of the U.S. The price of oil advanced 1.505 percent versus the greenback as output disruptions continue.

The wildfire in Alberta had moved on from populated areas and was thought to be dying down only to change direction and head to oilseeds facilities. Air quality has not improved delaying the timeline for operations to get back online, and with a new threat there is no clear date when production will return to its normal schedule. The news yesterday from Goldman Sachs on their end of a supply glut call and growing disruptions have put the $50 a barrel price in sight.

Tomorrow there will be no Canadian data to guide CAD traders and most of the market will be focusing on the U.S. inventories with a lower forecast after the American Petroleum Institute (API) released a 1.1 million barrels reduction. The minutes from April’s Federal Open Market Committee (FOMC) will be scanned for clues about the fate of the June rate hike. The positive inflation data will not be a part of the minutes as the meeting took place in April 27, but if there are more pro-inflation comments it could act as a catalyst for the meeting in June. The market has put June back on the table, although the odds still look long for a rate hike next month. The FedWatch Tool by the CME latest update points to a 18.8 percent probability of a rate hike in June, rising to almost 32.2 percent in July and 41.7 percent in September. Yesterday the probability for June was around 4%.

CAD events to watch this week:

Wednesday, May 18
10:30am USD Crude Oil Inventories
2:00 pm USD FOMC Meeting Minutes
Thursday, May 19
8:30am USD Philly Fed Manufacturing Index
8:30am USD Unemployment Claims
Friday, May 20
8:30 am CAD Core CPI m/m
8:30 am 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

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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