USD/CAD Canadian Dollar Lower Ahead of Fed Rhetoric

The Canadian dollar is down 0.10 percent versus the dollar on Monday. The loonie started the week on the wrong foot versus the greenback after diverging jobs report on Friday. Canada lost 2,200 jobs in June, while the US added a massive 224,000 positions to rebound from the disappointing May report.

usdcad Canadian dollar graph, July 8, 2019

The Bank of Canada (BoC) is expected to keep the benchmark interest rate unchanged at 1.75 percent on Wednesday, and later in the day the Fed will release the notes from its June FOMC meeting. The market anticipated a rate cut later in the month from the Fed and will keep the loonie as one of the strongest G10 currencies.

OIL – Oil Lower But Eyes Turn to Middle East on Supply Concerns

Oil prices were set for a deeper loss on Monday as the US dollar got back its mojo after Fed rate cut expectations are cooling after a massive jobs gain on Friday.

A stronger dollar and a lower drawdown last week are putting downward pressure on crude prices. Tensions in the Middle East gave prices a boost as the UK confiscated an Iranian oil tanker headed to Syria violating EU sanctions.

West Texas Intermediate graph

Supply disruptions could be on the rise as Iran is on a collision course with the EU after the US pulled out of the Nuclear deal could get worse if the Strait of Hormuz is closed.

Brent crude graph

The prolonged trade war between China and the US does not seem to be nearing a resolution, and it will keep being a negative factor for crude prices as it impacts global growth forecasts.

GOLD – Gold Lower as Fed to Final World on Dollar

Gold lost 0.16 percent on Monday after the market is walking back some of the pricing around the number of Fed rate cuts this year. The monster NFP jobs gain in June has traders second guessing just how hard and fast the central bank will reduce its benchmark rate after hiking four times in 2018.

Pressure from the White House cannot be ignored as Fed Chair Powell will hold center stage this week with a scheduled speech and two testimonies. Fed speakers will be out in force with the main highlight to be the Federal Open Market Committee (FOMC) notes from the June meeting.

Dovish rhetoric is expected, and anything less could spark a Dollar rally as the greenback has been on the back foot ever since the Fed telegraphed its rate cut intentions.

Gold remains above $1,400 and even the dollar regaining its mojo could not be enough to drive investors away from the yellow metal as Middle East tensions are hitting higher levels of uncertainty and with the election of a new conservative leader in the UK, Brexit turmoil will once again hit the market.

STOCKS – Equities Under Pressure from Stronger Dollar

The stock market registered a day of losses ahead of what Fed Chair Powell will have to say this week. The head of the US central bank is scheduled to speak in Boston on Tuesday, and back to back testimonies in Washington. Fed speakers and the minutes of the June FOMC meeting will put pressure on equities at the same time earnings are starting to trickle in.

Equities have been on a record pace ahead of the NFP report on Friday. The better than expected job rebound is forcing the market to rethink its pricing on the number of rate cuts. Three was the group-think forecast, now moving down to two, but always with an eye on the US-China trade war and its possible negative impact on US growth.

FX – Dollar Higher on Jobs Boost Awaits Fed Rhetoric and Notes from FOMC

The US dollar was higher against major pairs on Monday still trading on the US jobs boost from Friday’s better than expected NFP report. The monster rebound is putting into question how many times the Fed must cut its benchmark interest rate to keep the forward momentum of the economy going.

Fed member Bullard had already cautioned the market from a 50-basis cut, and considering he was the lone voter in favor of a rate cut in June it will be interesting to see what other members consider an appropriate response when the FOMC meeting minutes are published on Wednesday.

The dollar will be extremely sensitive to what members of the central bank have to say this week and what get release on Wednesday.

The Malaysian ringgit is lower against the dollar ahead of a week heavy with US Central bank rhetoric. The Fed is expected to cut in July, but further rate cuts are being put into question by the strong reaction of the US job market. Meanwhile, Malaysia is expected to keep its overnight policy rate unchanged when the Bank Negara Malaysia meets on Tuesday.

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