The Canadian dollar depreciated on Thursday erasing the gains from a day earlier when the Organization of the Petroleum Exporting Countries (OPEC) announced an oil output cut surprising the market who was expecting a freeze. Doubts about the details of the agreement are keeping the price of oil from rising higher and have put pressure on the CAD that awaits Friday’s Canadian GDP figures for the month of July.
Comments all week from U.S. Federal Reserve members have made an interest rate hike this year very likely. Fed Presidents Loretta Mester and Dennis Lockhart both made comments supporting an interest rate, with Philadelphia President Patrick Harker focusing more on the impact of trade. Fed Chair Janet Yellen testimony in Washington continued to include no new information on the rate hike cycle, but understandably was concerned with regulation and oversight after the Wells Fargo scandal.
The Final U.S. GDP data for the second quarter delivered positive news for the USD with a higher than expected 1.4% percent growth beating the forecast of 1.3 percent based on the two previous estimates. Unemployment claims rose last week by 3,000 for a 254,000 claims but still under the anticipated 260,000. The job market has been the strongest pillar of the U.S. economic recovery, but as the market gets closer to full employment there are more questions about the quality and wages of the jobs that have replaced those lost after the 2008 crisis.
The USD/CAD lost 0.428 percent in the last 24 hours. The pair is trading at 1.3155 after the CAD rally ran out of steam at the 1.3050 level. Doubts on the OPEC strategy and its execution and vigilance of production quotas slowed down the appreciation of oil and reversed most of the gains for the Canadian currency versus the dollar.
The Bank of Canada (BoC) has stood on the sidelines for most of 2016 opting for the Federal government to try and do the heavy lifting to spark economic growth with fiscal stimulus. Announced in March and with an update expected in November the fiscal stimulus package has not been enough to spark growth and is now facing revenue challenges. The Finance department conducted a survey of economists that forecast a $50 billion drop in nominal output. A new round of stimulus is needed to help the Canadian economy overcome the drop of natural resource prices but it might prove to be a difficult political proposition. The BoC has said it is ready to act, but the runway is small on the interest rate front with 0.50 and with other options like negative rates and quantitative easing mentioned.
West Texas rose 1.654 percent in the last 24 hours. The price of crude is trading at $47.13 after the OPEC announced an oil production cut in their meeting in Algiers. There are question marks about the finer details of the agreement and they will be addressed in the official November meeting of the organization in Vienna.
Now although producers have agreed to agree, avoiding the fate of the Doha meeting it seems Saudi Arabia has had to compromise and is losing its unquestioned leadership of the group. Iraq apparently was not happy with the agreement and has become the number two crude producer as Iran was under sanctions for its nuclear program. Another factor limiting the impact of the announcement is that part of the strategy in achieving market share through record high levels production would keep shale producers out of the market, and if OPEC’s plan starts rising prices, it will also do it for competitors. Supply continues to be disconnected from the global demand for crude which has shown unusual patterns during the summer.
Market events to watch this week:
Friday September 30
4:30am GBP Current Account
8:30am CAD GDP m/m
9:00pm CNY Manufacturing PMI
*All times EDT
For a complete list of scheduled events in the forex market visit the MarketPulse Economic Calendar 
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