The Canadian dollar broke through the 1.31 price level and is aiming to end lower than 1.30 after the U.S. dollar’s appeal as a safe haven has been reduced following the elections results in Japan will trigger further stimulus and the rise of Theresa May as the only candidate for the U.K. Prime Minister position has calmed markets post Brexit.
The Bank of Canada (BoC) will be thankful for a more normal environment when it releases the interest rate statement on Wednesday, July 13 at 10:00 am EDT. The central bank is expected to hold its rates unchanged at 0.50 percent. The focus for CAD traders will be the publication of the quarterly Monetary Policy Report. Since there is little action forecasted from the BoC in the third quarter the governor Stephen Poloz could try to use dovish language to put downward pressure on the loonie in an effort to boost exports.
The BoC was proactive in 2015 with two rate cuts ahead of the tumble in oil prices. This year the central bank has been more patient amid rising macro headwinds. There are few factors that are outside Canada’s control such as the price of energy and market uncertainty triggered by political events in Europe that have lead to a depreciation of the CAD. The biggest factor supporting the CAD has been the apparent stability of U.S. growth and the low exposure to British trade.
The USD/CAD lost 0.662 percent in the last 24 hours. The pair is trading at 1.3027 ahead of the release of the rate statement by the Bank of Canada on Wednesday. The news at the start of the trading week have put the USD on the back foot as risk aversion has diminished and with it the appeal of the dollar as a safe haven. Canadian employment is diverging from the resilient U.S. jobs sector so a full on CAD rally is not expected given the negative outlook on the resource dependant economy.
The West Texas oil rose 1.06 percent in the last 24 hours. The price of energy is trading at $45.59 after crude has rebounded thanks to the weakness of the USD. The Organization of the Petroleum Exporting Countries (OPEC) downgraded its global growth forecast to 3 percent in 2017 citing the impact the Brexit vote will have on global growth. The OPEC is still maintaining its forecast for global demand at 1.2 million barrels a day, which is 300,000 higher than the 10 year average.
The biggest indicator for the CAD this week will be the release of the Monetary Policy Report by the Bank of Canada (BoC). The central bank has issued warnings about rising household debt and has tried to curb the number of new mortgages as low rates has driven housing prices higher which would not make a rate cut their preferred option. The global macro headwinds have forced the BoC into a corner where waiting seems to be the only option. Waiting for the effects of the Canadian government stimulus program announced in March and patience toward the Fed who is exercising its own caution regarding rates as global growth is subdued.
CAD events to watch this week:
Wednesday, July 13
10:00am CAD BOC Monetary Policy Report
10:00am CAD BOC Rate Statement
10:00am CAD Overnight Rate
11:15am CAD BOC Press Conference
Thursday, July 14
8:30am CAD NHPI m/m
Friday, July 15
8:30am CAD Manufacturing Sales m/m
*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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