USD/CAD Canadian Dollar Higher Despite Less Dovish FOMC Statement

The Canadian dollar is higher after the U.S. Federal Reserve ended its two day Federal Open Market Committee (FOMC) meeting and released its statement holding interest rates unchanged. The mixed messages from the Fed who did not have a press conference schedule to expand on their statement left the market a bit underwhelmed despite the less dovish language used. The market focused on the “Near-term risks to the economic outlook have diminished,” from the FOMC alongside notes on the strong job recovery that would point to higher rates in the near future.

The USD could not convert all that hawkish interest rate hike language into strength. In fact the dollar was lower against major pairs as expectations were barely met and more information is needed. The release of the minutes in three weeks could provide the missing link and once again boost the USD if the internal debate proved to be more slanted towards a rate hike before December.

Oil prices were weaker and hit a 3 month low after U.S. oil inventories showed a surprise rise in stockpiles of 1.7 million barrels instead of the forecasted 2.3 million barrels drop. Demand has failed to grow during the busy Summer driving season and producers around the world continue to flood the market with oversupply. The resulting glut has put downward pressure on prices all year, with only the Saudi Arabia and Russia attempt of an oil output freeze able to stylize the market. The failure to reach an agreement is now coming to the forefront as the price of oil is trading near $41 and with weak economic forecasts could fall even further.

The USD/CAD lost 0.047 percent in the last 24 hours. The pair is trading at 1.3174 after the U.S. Federal Reserve released the statement from the latest Federal Open Market Committee (FOMC) meeting. The loonie managed to end the session in positive territory despite the earlier losses attributed to the high correlation with the falling price of crude.

The West Texas Oil lost 1.863 percent in the last 24 hours. The pair is trading at $41.56 after the shocking buildup of inventories in the U.S.. The price of crude has traded lower as market concerns with oversupply continue as producer output is near record levels with no apparent slowdown in sight. The Doha agreement never materialized and the split within the Organization of the Petroleum Exporting Countries (OPEC) will an oil freeze output from becoming a reality. The statements from Russia make it clear there hasn’t been more communication on the matter with Saudi Arabia and for the moment only a supply disruption could stop the price of the black stuff from falling further.
The Bank of Japan is next in the agenda with analysts divided on their forecasts. Stimulus is needed but the timing is up for debate. The market expects the BOJ to act sooner rather than later and put to use the stimulus package pledge by PM Shinzo Abe. Yet the central bank has been on the wrong end of the marker’s appetite for risk and the JPY has risen due to its safe haven preference amongst investors.

The loonie will have to thread through difficult waters until the release of the monthly GDP figures on Friday. The second quarter was a disappointment and there are serious fundamental issues in Canada which unfortunately fall outside what the government and the central bank have any control over. The fall in commodity prices continues as the presidential race enter the long final stretch in the U.S.. Risk aversion and volatile markets await with energy producers left with little to do after the Doha talks failed to reach even the slightest hope of cooperation.

CAD events to watch this week:

Thursday, July 28
Tentative JPY Monetary Policy Statement
Friday, July 29
8:30 am CAD GDP m/m
8:30 am CAD RMPI m/m
8:30 am CAD IPPI 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