The Canadian dollar has been caught in a tight trading range ahead of the Jackson Hole summit where the main highlight will be the speech by U.S. Federal Reserve Chair Janet Yellen. The USD has depreciated as the market continues to price in the possibility of the U.S. central bank standing pat for the rest of 2016.
This week has been light on economic indicators and traders have been anxious about any announcements that could come out of the central bank summit in Wyoming. Historically Yellen and her predecessors have sent signals of changing monetary policy at the monetary policy summit. This time around the occasion does not seem as monumental with U.S. growth losing momentum, but at the same time other major economies fighting deflation being forced into negative rates.
The price of oil has been on a roller coaster as on one side the soft USD has appreciated the black stuff along with the rumblings of a possible output freeze agreement coming as soon as next month. Today the Saudi Arabia Energy Minister dismissed those rumours as he told a reporter that the Organization of the Petroleum Exporting Countries (OPEC) has not had any discussion of substance on production levels. The price of crude managed to retain a 1.2 percent daily gain despite the comments from the Saudi Energy Minister as dollar the dollar faces the potential fallout of a dovish Yellen on Friday.
The USD/CAD lost 0.036 percent in the last 24 hours. The pair is trading at 1.2925 after crude price gains and a soft dollar have helped the Canadian currency trade in a 1.2915/45 range versus the greenback. The views on the Fed are split. On one hand some investors expect the Fed to deliver clear signals of an impending rate hike at Jackson Hole summit. The host of the summit is Kansas City President Esther George, the only dissenter in the Federal Open Market Committee (FOMC) that voted for a rate hike in the last two meetings. The other side of the argument is that there is rising uncertainty in the effectiveness of the easing monetary policy actions of the Bank of Japan (BOJ), the Bank of England (BoE) and the Bank of England (BoE). Hiking now, even at a token 25 basis points might mean a rate cut that could have been avoided by showing patience.
The CAD is caught between the patient Fed and the other major central banks that are running out of available options with the BoJ and the ECB already dipping into unconventional policy tools. The Bank of Canada (BoC) was proactive in 2015, but has traded the right analysis on crude prices and followed through with two rate cut, for a more cautious approach. The Canadian central bank has the support of the government who pushed through an optimistic if not overtly ambitious fiscal stimulus program in March. The BoC is waiting for the results of that strategy and the actions from other central banks to plan its monetary policy strategy for the rest of the year. The Canadian benchmark rate is at 0.50 percent, the lowest on record and the BoC has said that it can deploy unconventional tools if needed.
West Texas oil gained 1.268 percent in the last 24 hours. The WTI is trading at $46.72 despite the Energy Minister of Saudi Arabia’s comments on the lack of conversation by OPEC members about an oil output freeze and bullish views on the global demand for energy. The weak USD ahead of the much-anticipated Janet Yellen speech split commodities in half. Crude jumped after a smaller than expected jump in inventories of Natural gas in the U.S. while gold lost 0.183 as the uncertainty of a possible rate hike by the Fed coming sooner rather than later. In the last five days both commodities are in negative territory. Gold is down 2.2 percent and West Texas oil almost 3 percent.
Market events to watch this week:
Friday, August 26
4:30am GBP Second Estimate GDP q/q
8:30am USD Prelim GDP q/q
ALL DAY Jackson Hole Economic Policy Symposium
10:00 am U.S. Federal Reserve Chair Janet Yellen Speech at Jackson Hole
*All times EDT
For a complete list of scheduled events in the forex market visit the MarketPulse Economic Calendar
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Alfonso Esparza
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.
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