CAD Lower After BoC Governor Speech
Alfonso Esparza | Sep 27, 2017 14:38
The Canadian dollar was lower on Wednesday after the Bank of Canada governor delivered a speech in Newfoundland. Governor Stephen Poloz said there is no predetermined path for interest rate and that the central bank would proceed with caution. The rhetoric was less hawkish that his comments in June and July. Unknowns are making estimating the appropriate rate path hard, but then again, that has been the situation in all of 2017. The loonie has been one of the best performers this year after the two rate hikes, but has lost momentum after the U.S. Fed has signalled a third rate hike of the Fed funds rate. The comments from the BoC indicate a slower rate path that could see the central bank standing pat for the remainder of the year.
The Canadian economy is the fastest growing out of the Group of Seven, which explained the quick turnabout from the central bank regarding rates. In June, senior policy-makers started dropping heavy hints about an upcoming rate hike, which materialized in July. The BoC was quiet ahead of September and, with the market estimating a rate move in October, it was caught by surprise by the rate hike announcement. Economists criticized the central bank for their lack of communication. The Canadian rate stands at 1.00 percent, the same as in 2015 before Poloz made two proactive cuts ahead of a steep fall in oil prices.
NAFTA negotiations are one of the unknowns that was not called out by name by Poloz on Wednesday. While the U.S. and Mexico want a speedy resolution ahead of elections in both nations, it is Canada who has been hit by intimidation tactics. The first one was the lumber tariffs imposed earlier in the year and now it is Canadian company Bombardier (TO:BBDb) that will have to pay 220-percent duty on its C-Series planes. The move was also condemned by U.K. Prime Minister Theresa May, who is threatening with retaliation. Bombardier employs 4,000 in Northern Ireland, and given the importance of the Democratic Unionists in forming a Conservative government after the fiasco of the snap election results.
The USD/CAD lost 0.021 in the last 24 hours. The currency pair is trading at 1.2374 ahead of U.S. President Donald Trump speech outlining his tax reform. The USD failed to capitalize on a hawkish speech by Fed Chair Janet Yellen yesterday, putting a December rate hike for the U.S. benchmark firmly on the table. Yellen issued a warning that waiting for inflation to pick up could be a big mistake. The Canadian dollar appreciated earlier in September when the Bank of Canada (BoC) surprised markets with a 25-basis-points rate hike.
Get The App
The central bank was quiet ahead of announcing the monetary policy decision in stark contrast with the July meeting, when it gave the market a clear heads up on its intentions. The market was expecting the 25-basis-points rate hike to come in October, but the BoC thought it best to do it sooner, with no warning.
Later in the week, the monthly GDP figures will be announced, which could validate Poloz’s eagerness to hike. A slowdown in growth could also raise question marks about his decision given that as expected the European Central Bank (ECB) and the U.S. Federal Reserve did not touch their benchmark rates. The Fed did finally announce the details of its balance sheet reduction program. December will be once again host the most important meetings of the year for most central banks. The Fed could hike a third time, but it all depends on the economic performance in the third quarter.
U.S. oil rose 0.923 on Wednesday. The price of West Texas Intermediate is trading at $51.72 after the Energy Information Administration (EIA) released the weekly inventory numbers. Crude stocks printed a surprise drawdown of 1.8 million barrels. This is the first decline in four weeks for crude inventories and a strong signal that refineries in the U.S. are back online. Gasoline stocks climbed 1.1 million barrels also beating expectations of a 100,000 barrel drawdown. U.S. refiners are running at a 88.6 percent capacity.
Energy analysts are hopeful of strong demand for energy in the coming years, but so far only supply disruptions have made energy prices rise. The hurricanes in the U.S. and the ongoing situation in northern Iraq will keep prices higher until they are sorted. The U.S. energy sector seems to have shaken off the impact of the two hurricanes and is well on its way to full capacity ahead of the winter season. The geopolitics in Iraq will bring volatility to crude as global supply could be affected by the Kurdish region wishing to form its own state. The Iraqi central government and allies like Turkey have already warned about the retaliatory measures they will take on the result of the referendum. Turkey has said that it would cut off the pipeline carrying Kurdish oil to make if they do not desist.
Market events to watch this week:
Wednesday, Sept. 27
4 p.m. NZD Official Cash Rate
4 p.m. NZD RBNZ Rate Statement
Thursday, Sept. 28
8:30 a.m. USD Final GDP q/q
8:30 a.m. USD Unemployment Claims
Friday, Sept. 29
4:30 a.m. GBP Current Account
8:30 a.m. CAD GDP m/m
*All times EDT
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.
Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.