The loonie was nearly flat against the US dollar on Monday. Crude prices retreated from their supply disruption highs after the attacks in the Gulf of Oman and with softer Chinese data the emphasis is now on growth concerns.
Canadian currency traders will be following the information coming from the U.S. Federal Reserve. The central bank is expected to keep the rate unchanged, but tweak its language to signal an imminent rate cut, sooner rather than later.
The US dollar is mixed across the board against major pairs at the start of the week. Central banks are in the spotlight this week as the Fed, the Bank of England (BoE) and the Bank of Japan (BOJ) amongst other will be the on deck.
The US Federal Reserve will host its Federal Open Market Committee (FOMC) meeting with the biggest question mark being if the central bank is ready to drop its patient language into full easing mode. The Fed appears ready to do a 180 degree turn, after hiking four times in 2018 it could cut its benchmark interest rate this year.
The June meeting is the first window of opportunity, with the market divided on the timing. July seems a more likely scenario as the end of June could still bring a major breakthrough in US-China trade relations.
The Fed has been sending mixed messages on its FOMC statements. Still hawkish on US growth but with growing concerns about macro headwinds, such as trade disputes. The US economy is losing momentum as the U.S. non farm payrolls (NFP) missed the mark last month and inflation remains muted.
The Fed is known for being more reactive, than proactive, until there are further economic indicator misses, the central bank could remain patient awaiting more signs of a permanent slowdown of the economy.
Oil prices opened higher on Monday but eventually ended up in the red by the end on the back of lower than expected Chinese data. Supply concerns after two tankers were attack in the Gulf of Oman boosted crude prices last week,. The US affirms that Iran is behind the attacks which is raising anxiety about armed conflict as Saudi Arabia has reached the same conclusion.
Tensions remains high and crude prices keep rising as a large percentage of crude oil needs to be transported in the region.
Supply disruptions are edging out higher inventories in the United States, and stagnant demand for physical oil with a prolonged trade war putting downward pressure on crude prices. The threat of armed conflict in the Middle East will keep the black stuff bid until cooler heads prevail.
Gold is lower on Monday at the start of the Asian trading session. Profit taking is taking the toll on the yellow metal pricing after it broke above $1,340 last week. Safe haven flows and the high probability of the Fed cutting rates sooner rather than later were positive for gold. The Fed could hint at a rate cut to come at the July meeting, or even surprise the market with an interest rate cut announcement on Wednesday.
Until the Fed monetary policy statement is not published the market will try not to get ahead of itself as there remains a high probability of the Fed being true to its central banking roots and put patience before action.
Gold will remain bid in the mid term as trade war concerns are giving way to armed conflict with the situation in the Middle East will keep the yellow metal on the mind of investors looking for refuge from market uncertainty.
Earnings this week will take a back seat to the Fed, although the main highlight will be Fed Chair Jerome Powell’s press conference. The statement form the central bank will have some clues along with the dot plot, but finance journalists will ask point blank on the timing of rate cuts which will steer the market based on the tone of the answers from the Fed chief.
Powell instituted press conferences after every meeting instead of the previous key meeting. Chair Powell could use his time on camera to walk back some of the market’s expectations on easing without coming out as hawkish. The stock and currency markets would be the quickest to react to change in monetary policy expectations.
A less than full dove undertone from the Fed could stop a rally in equities and reverse some gains as there is heavy anticipation of a rate cut sooner rather than later.
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