USD/CAD – Loonie Stable on BOC Financial Review and Oil Drop

The Bank of Canada (BoC) has deemed the risks to the Financial system from the Canadian housing sector have been balanced by the improving economy. The rise of house prices in Toronto and Vancouver continue to be a concern as borrowers continue to incur in large debt. Governor Stephen Poloz was optimistic about the economic recovery and is confident that the central bank has made the necessary changes to keep the housing market in check.

Canadian data has been mixed this week. The Ivey PMI survey released on Tuesday, June 7 showed a contraction in May at 49.4. The loonie’s recovery as well as the economic impact of the Alberta wild fires are taking a toll on the leading indicator. Housing maintained a steady pace of growth with 189,000 housing starts and a slight reduction of 0.3 percent in new building permits.

The price of oil ended a three day rally on Thursday. Disruptions in Nigeria and Canada continue, but the move was driven by traders taking profit on the latest surge. After the Organization of the Petroleum Exporting Countries (OPEC) meeting in Vienna there has been some uncertainty about what will happen once the temporary disruptions work themselves out and global production is still at record levels.

Unemployment claims in the U.S. were inline with expectations at 264,000. After the disappointing U.S. non farm payrolls (NFP) report last week this comes as USD positive. While the number of new jobs being added is not expected to grow at the breakneck pace it did for the past 2 years, firings have been less frequent which could make a case for the U.S. Federal Reserve to raise rates in the summer.

Employment continues to be the strongest pillar of the U.S. recovery, but it could not sustain that pace forever and it seems the Fed might once again missed a good window to be proactive with economic indicators validating their decision. The U.S. elections will mean the Fed will recluse itself from major economic decisions for fear of having a political bias. The leaves June and December as real opportunities as they both have press conferences. It might be too late for June. The CME FedWatch tool has a 3.8 percent probability of a rate hike on June 15.

The USD/CAD has gained 0.157 percent in the last 24 hours. The pair is trading at 1.2719 after the USD has managed to end its losing run against the CAD. The positive employment data was able to offset some of the damage done to the USD by the weak NFP last week. Employment data for CAD traders will be front and center tomorrow as Canadian data will be released at 8:30 am. Canada is expected to have added 3,000 new jobs and kept the unemployment rate at 7.1 percent.

Profit taking after a three day rally has oil losing 0.78 percent in the last 24 hours. The West Texas crude price is still above $50, but there are concerns that once the disruptions in the market are resolved and a supply glut puts downward pressure on the price of oil as OPEC and other producers continue to pump at record high levels.

The U.S. will release a preliminary University of Michigan Consumer Sentiment. Consumers has expressed growing confidence in the economy, but until last month there wasn’t much correlation between being confident and actually spending. Core retails jumped 0.8 percent in the latest report. Adding auto it was a more impressive 1.3 percent gain. The U.S. economy depends on strong consumer spending to accelerate the pace of recovery. The core retails sales data will be released next week a day before the Fed releases its June FOMC and answer the interest rate hike question that has been hanging over the market since the release of the April FOMC minutes.

CAD events to watch this week:

Friday, June 10
8:30am CAD Employment Change
8:30am CAD Unemployment Rate
10:00am USD Prelim UoM Consumer Sentiment

*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