The Canadian dollar dropped to a one month low as the effects of the hawkish Federal Open Market Committee (FOMC) minutes released on Wednesday. The USD has gained across the board versus majors as the U.S. Federal Reserve changed market expectations with the release of the notes from the April 27 meeting. The April FOMC meeting had no press conference which left investors few clues on what the members of the Fed were thinking. The statement made minor changes to the previous dovish statement which in the view of the market put the June interest rate hike off the table.
The biggest surprise on the usually uneventful FOMC minutes release was that members were in fact optimistic about the U.S. economy and discussed a possible June rate hike if the economy showed growth and resilience. The minutes are published three weeks after the FOMC meeting and the economic indicators released during that time filled that definition, putting a June rate hike back online.
The Canadian wholesale sales disappointed with a 1.0 percent contraction. Five of seven sub-sectors (65 percent of sales) saw a decline in sales in March. Only machinery and computer and communications equipment recorded an increase fro last month. The softer data and the decline in the price of energy put the CAD on the back foot versus the USD.
The USD/CAD gained 1.18 percent in the last 24 hours. The loonie depreciated as the USD got a boost from the FOMC minutes showing Fed members are more hawkish than previously thought. The pair is trading at 1.3089 after reaching a session high of 1.3154. The session highs were seen as oil was retreating due to the U.S. dollar strength. The CAD had no support from crude prices who were lower as the USD rise pushed oil downward. The prospect of rain in Alberta has reduced the impact of the wildfires in the oilsands region and could bring the facilities back online sooner than expected; ending the supply disruption that has benefited the price of oil.
The release of U.S. inventories on Wednesday pointed to a buildup of 1.3 million barrels in the last week putting further pressure on the price of oil as the Organization of the Petroleum Exporting Countries (OPEC) and Russia continue to pump at record levels which only North America and regions with social unrest reducing their output. The supply glut is expected to continue to put pressure on crude prices, despite Goldman Sachs call that their oversupply call was no longer valid. West Texas oil lost 1.37 percent in the last 24 hours. The WTI trades at $47.76
Loonie traders will be on the lookout for inflation and retail sales data to be released on Friday. Retail sales is expected to decline by 0.7 percent while the core (excluding auto) is forecasted to shrink by 0.4 percent. Inflation is anticipated at 0.4 percent and reducing volatile components the core figure is expected at 0.1 percent. The Bank of Canada (BoC) will remain in the sidelines in the short term until the effects of the stimulus package put in place by the Federal government starts to pays dividends. The central bank will act if needed, but it is not likely to front run the U.S. Federal Reserve who may or may not raise interest rates in June. The Brexit referendum and the U.S. presidential elections will keep Canadian policy makers busy as the macro economic conditions will shift on a regular basis affecting the path of Canada’s growth.
CAD events to watch this week:
Friday, May 20
8:30 am CAD Core CPI m/m
8:30 am CAD Core Retail 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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