The Canadian dollar was flat on Friday as the US dollar rally triggered by the hawkish economic projections published on Wednesday by the Fed were offset by rising risk concerns about North Korea. Canadian data was mixed on Friday putting in question a third rate hike in 2017.

Canadian inflation underperformed in July rising by only 1.4 percent and retail sales rose by 0.4 percent but a decline in the volume of goods sold is a cause for content. The Canadian dollar appreciated versus the US dollar in early September when the Bank of Canada (BoC) hiked rates earlier than expected. The Canadian benchmark is now 1.00 percent, the same level as back in 2015 before current BoC governor made two pro-active rate cuts ahead of a forecasted fall in oil prices.

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The market was originally expecting a rate hike in October, and with the September rate move and mixed data the probabilities are down to 38 percent. What is keeping the odds high is the fact that the Canadian economy surprised with a 4.5 percent annual growth in the second quarter. The US dollar got some support from the Fed on Wednesday when the central bank as anticipated announced the beginning of its balance sheet reduction plans. The hawkish economic projections published at the same time put downward pressure on the loonie as the interest rate divergence will could still favour the US dollar with a December rate hike above 70 percent probability.

Oil rose 1.76 percent this week. The price of Brent is trading at $56.54 very near weekly highs. Oil prices ended the week with gains after the Organization of the Petroleum Exporting Countries (OPEC) and other major producers met in Vienna to discuss the current production cut agreement. While no big decision was announced OPEC members had been supportive of extending the deal beyond the March 2018 end. Russia’s Energy Minister was more pragmatic and offered no clues other than its too early to discuss a decision. With US production disrupted by tropical storms and the OPEC and other producers reducing their output oil prices have risen.

Gold lost 2.01 percent in the last five days. The precious metal is trading at $1,295.11 after touching highs of $1,322.02 earlier in the week. Gold managed to score a daily gain on Friday, but could not reverse the downward trend triggered by the U.S. Federal Reserve economic projections showing another rate hike still on the table for this year. The Fed has hiked twice already with the Fed funds rate sitting at a 100 to 125 basis points range. The FedWatch tool developed by the CME shows a 71.4 percent probability of a rate hike at the end of the Fed’s December meeting.

North Korean tension has kept Gold bid as a war or worlds could trigger a real armed response. The move in the yellow metal this week shows the market is more focused on rates than geopolitics, but as always that could be subject to change if there is an escalation in hostilities.

Market events to watch this week:

Sunday, September 24

  • All Day EUR German Federal Elections

Tuesday, September 26

  • 10:00am USD CB Consumer Confidence

Wednesday, September 27

  • 8:30am USD Core Durable Goods Orders m/m
  • 10:30am USD Crude Oil Inventories
  • 4:00pm NZD Official Cash Rate
  • 4:00pm NZD RBNZ Rate Statement

Thursday, September 28

  • 8:30am USD Final GDP q/q
  • 8:30am USD Unemployment Claims

Friday, September 29

  • 4:30am GBP Current Account
  • 8:30am CAD GDP m/m

*All times EDT

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