USD/CAD Canadian Dollar Higher Ahead of Fed Meeting

The Canadian dollar appreciated on Tuesday after losing traction at the beginning of the week as Bank of Canada (BoC) Deputy Governor Lane said the strength of the loonie would be a factor of monetary policy decisions. The CAD appreciated after the surprise rate hike in early September. The central bank did not signal its intention to hike but markets had it at least 50 percent, with the more likely candidate being October. The closing gap between US and Canadian rates boosted the loonie and a growth outperformed forecasts in Canada a third rate hike that would take the benchmark rate to 1.25 percent is not out of the question.

Canadian manufacturing sales dropped 2.6 percent in July with auto playing a big part. Plant shutdowns took total sales above the expectation of a 1.6 drop. Sales fell in 57 percent of manufacturers with a reduction in volume by 1.4 percent.

Canada posted a 14.5 budget deficit which improved on the preliminary numbers reported in May. The loonie was able to gain versus the US dollar ahead of the publication of the Fed’s rate statement tomorrow at 2:00 pm EDT. The Fed is expected to announce the details of its balance sheet reduction plans. The US central bank ammased a large portfolio of bond holdings as part of its QE program. The tapering of the program as well as rate hikes showed a tightening monetary policy, which will now include removing those bonds on a gradual basis.

usdcad Canadian dollar graph, September 19, 2017

The USD/CAD fell 0.214 percent on Tuesday. The currency pair is trading at 1.2272 after the dollar lost some momentum ahead of the release of the Fed statement on Wednesday. The US central bank economic projections will also be released along with a press conference at 2:30 pm EDT with Fed Chair Janet Yellen.

The Fed was able to remove stimulus in a gradual manner and has now hiked twice in 2017. The USD has received some of the benefits from a tightening economic policy, but political uncertainty has impaired the greenback. Another factor to look for in tomorrow’s statement and press conference is any hint of a December rate hike. The market had cooled on a final rate raise this year, but is now estimating the probability at higher than 50 percent.

West Texas Intermediate graph

US energy dropped 0.671 percent in the last 24 hours. The price of West Texas Intermediate is trading at 50.32 ahead of Wednesday’s US inventory data. Tropical storms have disrupted the US refinery and crude platforms but are now getting slowly back online. The other major factor this week has been rumours of the Organization of the Petroleum Exporting Countries (OPEC) seeking an extension to the production cut agreement made with other major producers. The agreement has already been extended once and will end in March, but there is talk it could be in place for all of 2018.

Market events to watch this week:

Wednesday, September 20
4:30am GBP Retail Sales m/m
10:30am USD Crude Oil Inventories
2:00pm USD FOMC Economic Projections
2:00pm USD FOMC Statement
2:00pm USD Federal Funds Rate
2:30pm USD FOMC Press Conference
6:45pm NZD GDP q/q
11:50pm JPY Monetary Policy Statement
Thursday, September 21
Tentative JPY BOJ Policy Rate
2:30am JPY BOJ Press Conference
8:30am USD Unemployment Claims
Friday, September 22
8:30am CAD CPI m/m
8:30am CAD Core Retail Sales m/m
8:30am All Day NZD Parliamentary Elections

*All times EDT
For a complete list of scheduled events in the forex market visit the MarketPulse Economic Calendar

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

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