The Canadian dollar benefited from stronger oil prices that rebounded after the U.S. inventories of gasoline surprised with a higher than expected drawdown. There are still concerns as that same energy stock report showed a rise in crude inventories which will come back to haunt oil prices. Risk appetite has been volatile and the lone has been caught in a trading range dictated by the USD and the price of crude.
After the oil inventories released today Canadian employment data will be the highlight but will eclipsed by the U.S. non farm payrolls (NFP) released at the same time. The eye of the market will be focused on the NFP specially after the growing doubts about the U.S. growth.
The USD/CAD lost 0.182 percent in the last 24 hours. The pair is trading at 1.3075 after the price of oil gave the loonie a boost. The Canadian currency is heavily correlated to the price of energy. The news of a lower stock of gasoline from last week made the price of crude rise even though crude stocks were higher than anticipated.
The Canadian dollar is navigating choppy waters after central banks around the world are facing the difficult task of stabilizing markets. The CAD is caught between the price of energy and the growth expectations of the United States’ economy. Volatility in crude and uncertainty about U.S. growth following the disappointing advanced GDP have made trading the Canadian currency a hard proposition.
West Texas gained 3.435 percent in the last 24 hours. The price of crude is trading at 40.77 after a bigger than expected drawdown in gasoline inventories in the U.S. pushed prices higher. Crude inventories rose by 1.4 million barrels versus the expected drawdown by the same number of barrels, but the main driver today was the 3.3 barrel drawdown in gasoline versus the anticipated 200,000 barrels.
The drawdown in gasoline was a positive surprise for refiners but given the rise in crude stocks the price of energy could be under pressure in the short term. Organization of the Petroleum Exporting Countries (OPEC) producers continue to pump at record levels with the rest of the world keeping the world well supplied, while at the same time reductions in demand in Asia will keep the price of oil in the current range.
The ability of central banks to steer the market has diminished as more quantitative easing and stimulus programs are launched to underwhelmed investors. The Bank of Japan (BOJ) and in a highly anticipated move the Bank of England (BoE) are looking for options to boost economic growth. The Bank of Canada (BoC) was proactive last year, but with a limited toolkit given the record low interest rate at 0.50 percent but is now looking at a hybrid approach alongside the Canadian government fiscal stimulus measures.
The Bank of England is the next central bank to face the judgement of the markets when it releases the heavily anticipated statement on Thursday, August 4 at 7:00 am EDT. The market expects BoE Governor Mark Carney to deliver the goods in the shape of a rate cut and adding funds to the quantitative easing program. So far the market could be setting itself up for a disappointing Super Thursday as Carney could only deliver on the rate cut, but going back to his forward guidance ways could point to a QE upgrade sooner rather than be forced into it like the European Central Bank (ECB).
Market events to watch this week:
Thursday, August 4
7:00 am GBP BOE Inflation Report
7:00 am GBP MPC Official Bank Rate Votes
7:00 am GBP Monetary Policy Summary
7:00 am GBP Official Bank Rate
7:30 am GBP BOE Gov Carney Speaks
8:30 am USD Unemployment Claims
Friday, August 5
8:30 am CAD Employment Change
8:30 am CAD Trade Balance
8:30 am CAD Unemployment Rate
8:30 am USD Average Hourly Earnings m/m
8:30 am USD Non-Farm Employment Change
8:30 am USD Unemployment Rate
*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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