The Canadian dollar depreciated on Wednesday as oil prices were volatile and the US dollar advanced spurned by the approval of the tax bill by the US House of representatives. The US Senate vote could happen later in the afternoon paving the way for US President Donald Trump to signs the bill and score his first major policy victory of the year. The US dollar started the year strong on the back of tax reform expectations and infrastructure spending promises. The Trump Administration decided to focus instead on immigration and health care which proved to be unpopular and were non-starters. The White House corrected the course and in the fall got back on track with its intention to overhaul the tax code. The road to tax reform has not been easy as it has proved unpopular in polls, but not with markets as it has given the greenback a boost before the end of the year.
Canadian economic indicators will be few and far between until next year. Inflation and retail sales on Thursday, December 21 and the monthly GDP release on Friday will close out the year. The Bank of Canada (BoC) stood pat in December keeping the benchmark rate at 1.00 percent. The central bank hiked twice in 2017 but is now sounding more dovish as the economy is slowing down in the second half of the year. BoC governor Poloz confused markets after a speech in Toronto was a hawkish take on the economy while later in the day the same topics got a dovish outlook. The rising risks of unknown factors such as the fate of NAFTA was present in both and could be a major blow to the economy in 2018 after the negotiations are almost at a standstill.
The USD/CAD gained 0.13 percent on Tuesday. The currency pair is trading at 1.2877 although at one point during the session the pair was trading above 1.29. The loonie has depreciated as the tax reform push is closer to the outcome Republicans wanted. The unified tax bill has passed the US House of Representatives and awaits the vote from the Senate later tonight before heading to the White House for President Trump’s signature. The vote will happen tonight and if successful to be presented on Wednesday Morning at the Oval office to be signed into law. As trading desks around the world look forward to the holidays the US tax overhaul is the last big event in the agenda.
Despite dovish comments from the Minnesota Fed Chief Neil Kashkari on how low inflation should be reason enough to pause monetary tightening in 2018, economic indicators were US dollar positive on Tuesday. Building permits rose to 1.30 million beating expectations, the current account showed a lower deficit at 101 billion (down form 124 billion last quarter) and housing starts also were above the forecast with 1.30 million beginning construction last month.
The price of oil rose in the last 24 hours. The price of West Texas Intermediate is trading at $57.50 as the outage in the North Sea pipeline continues. The issues at the Forties pipeline forced the operator to shut it down to perform repairs with no a two to four week window. Oil prices had been more stable after the Organization of the Petroleum Exporting Countries (OPEC) and other major producers announced an extension to their production cut deal now expected to end in December of 2018. US production is expected to ramp up to take advantage of the rise in prices.
US weekly inventories will be released on Wednesday, December 20 at 10:30 am EST. The string of drawdowns that started on November 22 is expected to continue with a forecasted 3.6 million barrels less of crude stocks. Gasoline stocks have had a bigger impact in the latest reports with surprise buildups that hint at a slowdown in demand. The OPEC led initiative has been offset with the promise of higher production in Brazil, Canada and the US with demand expected to remain stagnant oil prices could remain caught in a tight range unless there is a disruption in supply like the North Sea outage, geopolitical risk event or weather based.
Market events to watch this week:
Wednesday, December 20
10:30 am USD Crude Oil Inventories
4:45 pm NZD GDP q/q
Midnight JPY Monetary Policy Statement
Thursday, December 21
1:30 am JPY BOJ Press Conference
8:30 am CAD CPI m/m
8:30 am CAD Core Retail Sales m/m
8:30 am USD Final GDP q/q
8:30 am USD Unemployment Claims
Friday, December 22
4:30 am GBP Current Account
8:30 am CAD GDP m/m
8:30 am USD Core Durable Goods Orders m/m
*All times EST
For a complete list of scheduled events in the forex market visit the MarketPulse Economic Calendar
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