USD/CAD Canadian Dollar Higher Despite Fed and US Tax Reform Comments

The Canadian dollar was in a tight trading range on Tuesday after comments from Fed Chair Janet Yellen kept rate hike expectations high and comments form the Trump administration on tax reform put downward pressure on the loonie but the failure from the healthcare program repeal weighed on the USD. Consumer confidence in the US has slowed down in September after Hurricane Harvey and Irma hit, with home sales also registering a slowdown in August. The softness in the data is no cause for concern given the strong confidence and gains in house prices and is not on the Fed’s radar.

Fed Chair Janet Yellen gave a speech earlier that stressed it would be imprudent to leave rates on hold awaiting a rise in inflation. This contrasts with dovish Fed members who would prefer inflation to pick up near the 2 percent target before raising rates further. Yellen reiterated that a gradual approach to tightening monetary policy is appropriate with subdued inflation. The CME’s FedWatch tool continues to assign a higher than 70 percent probability for a rate hike in the December Federal Open Market Committee (FOMC) meeting.

CAD traders will be following the comments from Bank of Canada (BoC) Governor Stephen Poloz who is due to speak on Wednesday, September 27 at 11:45 am EDT. The central bank was quiet ahead of announcing the monetary policy decision in stark contrast with the July meeting when it gave the market a clear heads up on its intentions. The market was expecting the 25 basis points rate hike to come in October, but the BoC thought it best to do it sooner rather than later with no warning. Poloz’s speech will be filled with the bank’s assessment of the economy that prompted the BoC to make that decision.

Oil is lower ahead of the release of US inventories on Wednesday. The situation in Iraq, could threaten the supply in the region but the black stuff is still above $50 per barrel. The Iraqi Kurdish referendum has been criticized by other nations as well as the Iraqi government who has put an air traffic ban on the region.

usdcad Canadian dollar graph, September 26, 2017

The USD/CAD lost 0.09 percent in the last 24 hours. The currency pair is trading at 1.2339 after experiencing some volatility with Fed speakers and US government announcements on the schedule. Fed Chair Janet Yellen is urging policymakers to avoid being too careful in raising interest rates despite a low inflationary environment.

The USD is losing its appeal as a safe haven since the US central bank started trimming down its QE program. In a study form Bank of America the USD is doing worse on high risk days, while the JPY has improved since 2014.

Gold lost 0.676 percent on Tuesday. The price of the yellow metal is trading at $1299.80 after Fed Chair Janet Yellen’s speech. The prospect of higher US interest rates as well as a cool down in geopolitical risk has sent investors looking for alternatives away from the safe haven offered by the precious metal.

The situation with North Korea will keep the metal bid at any major change in the conflict. Russia has stepped into a mediator role and is rumoured to be using back channels to get North Korea to limit their military tests.

Market events to watch this week:

Tuesday, September 26
10:00am USD CB Consumer Confidence
Wednesday, September 27
8:30am USD Core Durable Goods Orders m/m
10:30am USD Crude Oil Inventories
4:00pm NZD Official Cash Rate
4:00pm NZD RBNZ Rate Statement
Thursday, September 28
8:30am USD Final GDP q/q
8:30am USD Unemployment Claims
Friday, September 29
4:30am GBP Current Account
8:30am CAD GDP m/m

*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