Canadian Dollar Lower After Fed Statement
Alfonso Esparza | Sep 21, 2017 09:22
The Canadian dollar was lower against its U.S. counterpart on Wednesday. The U.S. Federal Reserve published its updated economic projections and, as expected, kept the interest rate unchanged at 100-125 basis points. Also keeping with market forecasts, the U.S. central bank announced it will start the reduction of its balance sheet in October. The start date was the only piece missing as the Fed has already outlined the process it would follow.
The loonie had been trading higher against the USD ahead of the Federal Open Market Committee (FOMC) statement but retreated once the economic projections were published. The main takeaway was the number of members that still see a rate hike in 2017. Eleven out of 16 officials still see the appropriate level for this year at 125 to 150 basis points. Fed Chair Janet Yellen's press conference did not add a lot of additional details, but went through the statement and faced questions from the financial press. The Fed is facing a balancing act of strong growth and solid employment but, on the other hand, declining inflation.
Oil rose during the day, despite the larger than anticipated weekly U.S. crude inventories reported Wednesday morning. The higher than expected number was taken as a positive given the disruption caused by Hurricane Harvey and Irma in oil refineries and platforms.
Canadian inflation and retail sales data due on Friday will close the week for CAD traders. The currency pair will now trade guided on other economic indicators, geopolitical events and the statement of the Bank of Japan (BOJ).
The USD/CAD rose 0.612 percent on Tuesday. The currency pair is trading at 1.2347 after the U.S. Federal Reserve announced the beginning of its balance sheet reduction plans. The pair is near daily highs as the dollar rally stalled once Fed Chair Janet Yellen press conference started. The U.S. central bank updated its economic projections and while inflation remains muted there are still 11 members who are forecasting another price hike before the end of the year.
The Fed has raised rates at the December Federal Open Market Committee (FOMC) meeting in the past two years and could do so at the final meeting of the year. The central bank has supported the dollar with 2 rate hikes in 2017 so far, and is now shedding its massive balance sheet. The portfolio of bonds that were accumulated as part of the stimulus program will shrink by $10 billion each month.
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Market events to watch this week:
Thursday, Sept. 21
Tentative JPY BOJ Policy Rate
2:30 a.m. JPY BOJ Press Conference
8:30 a.m. USD Unemployment Claims
Friday, Sept. 22
8:30 a.m. CAD CPI m/m
8:30 a.m. CAD Core Retail Sales m/m
8:30 a.m. All Day NZD Parliamentary Elections
*All times EDT.
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