The Canadian dollar depreciated slightly versus its American counterpart in the first trading day of the week. The markets were awaiting the comments from Federal Open Market Committee (FOMC) voting member Lael Brainard. Earlier in the session non-voter hawk Atlanta Federal Reserve Bank president Dennis Lockhart said that economic conditions warranted a “serious discussion” on whether to raise rates at the Fed’s next meeting. The USD gained as again an influential non-voter Fed member was talking up the chance of a rate hike.
Brainard’s comments poured water on the U.S. dollar’s rise with a dovish comment. Sticking to the Fed’s “data dependant” stance the central bank governor and voting member urged against moving too quickly. U.S. inflation remains a concern as other economies face low growth and could affect the health of the economy. Her tone was cautious and hints at a central bank that would rather wait than act before it has done all the research on the potential impact of new monetary tools like negative rates and inflation target upgrades.
The volatility in the commodity markets saw crude rise even after Iran and Saudi Arabia are said to be pumping more oil ahead of the Algiers meeting. The CAD was trading above the 1.31 price level ahead of Brainard’s comments on the U.S. economic outlook and monetary policy. The dovish remarks saw the loonie regain some ground and near flat for the day.
The USD/CAD gained 0.021 percent in the last 24 hours. The pair is trading at 1.3077 with the majority of investors focused on rate hike expectations by Fed policy makers. Fed members have offered either too much guidance or not enough. In their efforts to put their take on the economy in front of the market Fed members have offered contradictory statements. The most factual statement of FOMC members beliefs is the vote count. Only Kansas Fed President Esther George has voted for a rate hike, yet there seems to be some hawks that attend the meeting yet vote to keep the rate unchanged.
Chair Yellen has taken a more neutral approach to her statements and even put the September rate hike back on the radar with her Jackson Hole comments. The counter to that optimistic view came today with Fed Governor Lael Brainard stressing the importance on waiting for the right data rather than acting hastily.
The Canadian economy has been hit by a drop in commodity prices even after the Bank of Canada (BoC) and the government have tried to diversity away from natural resources. The weakness of the currency has not done enough to boost exports in a macro environment where major economies are scrambling to find a solution for their growth dilemma.
West Texas oil gained 1.278 percent in the last 24 hours. The price of crude is trading at $45.98 after touching daily lows at $44.54 earlier in the session. Reports of rising production in Saudi Arabia and Iran put downward pressure on the price of oil in early trading. There are doubts that the Organization of the Petroleum Exporting Countries (OPEC) and non-OPEC members will reach an oil output freeze agreement when they meet in Algiers at the end of the month. Even if they manage to finally agree on a limit to output levels they will set them at record high levels, which won’t have a deep impact as global demand has not grown at the same pace of supply.
Weekly crude oil inventories released by the Energy Information Administration (EIA) on Wednesday will give more data for CAD traders to value the currency. Last week surprise drawdown was caused by tropical storms in the Gulf of Mexico, but according to reports the infrastructure did not sustain major damage resulting in a short-term disruption. The CAD will continue to suffer the impact of oil price fluctuations and Fed rate hike expectations. A distant third factor are actual Canadian fundamentals that remain mixed even as the BoC remains optimistic about a second half rebound in 2016.
Market events to watch this week:
Tuesday, September 13
4:30am GBP CPI y/y
5:00am EUR ECB President Draghi Speaks
5:00am EUR German ZEW Economic Sentiment
Wednesday, September 14
4:30am GBP Average Earnings Index 3m/y
4:30am GBP Claimant Count Change
10:30am USD Crude Oil Inventories
6:45pm NZD GDP q/q
9:30pm AUD Employment Change
Thursday, September 15
3:30am CHF Libor Rate
CHF SNB Monetary Policy Assessment
4:30am GBP Retail Sales m/m
7:00am GBP MPC Official Bank Rate Votes
7:00am GBP Monetary Policy Summary
7:00am GBP Official Bank Rate
8:30am USD Core Retail Sales m/m
8:30am USD PPI m/m
8:30am USD Philly Fed Manufacturing Index
8:30am USD Retail Sales m/m
8:30am USD Unemployment Claims
Friday, September 16
8:30am CAD Manufacturing Sales m/m
8:30am USD CPI m/m
8:30am USD Core CPI m/m
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