The Canadian dollar rose against the US dollar after the Bank of Canada (BoC) published its monetary policy statement keeping interest rates unchanged at 0.5 percent but Governor Stephen Poloz offered a hawkish rhetoric by saying that a rate cut is no longer on the table. He later balanced the view by commenting that the stance of the central bank is neutral. Economic indicators have been strong in Canada with employment reports adding two back to back gains of 15,000 or more jobs. Inflation and retail sales have been steady and the economy are at 0.6 percent month over month in March.
The loonie also got a boost from US President Donald Trump after he once again made comments on the greenback being “too strong” which prompted the currency to depreciate across the board. It is unusual for a head of state to issue those types of comments, which are usually made by the Secretary of Treasury. Donald also made a strange comment regarding Fed Chair Janet Yellen saying she is “not toast” implying he is open to extending her term at the head of the central bank adding that he likes and respects her, but is very early.
Oil fell after data from oil inventories was mixed with a larger drawdown than expected in crude inventories but an increase in operating capacity at refineries. The Organization of the Petroleum Exporting Countries (OPEC) production cut has been effective in keeping prices around the $50 range, but higher production in the US and Canada that are not part of the agreement continues to put downward pressure on prices. The OPEC is yet to announce clear plans on an extension to the agreement, but has said that compliance from members is above 100%.
The USD/CAD lost 0.083 percent in the last 24 hours. The pair is trading at 1.3321 after the Bank of Canada kept the benchmark interest rate unchanged on Wednesday. The move was expected by the market as the central bank has kept to the sidelines last year and the first quarter of 2017 after a proactive 2015 that saw two rate cuts ahead of the free fall of oil prices. In a tough balancing act Governor Poloz delivered a hawkish message by taking off the table a rate cut that was at times almost a given as the Canadian economy struggled last year. Negative rates were whispered if the stimulus from the government were to prove insufficient.
Poloz tried to remain neutral adding some pessimism with comments around the underperformance of exports and investment. Geopolitical risk specially with regards to the United States was mentioned by the central bank Governor as risks to the Canadian economy going forward as divergence between the two economies could continue as the US is near full employment.
Later in the day Stephen Poloz made more comments on the state of Canadian housing after he has said there are clear signs of speculation driving prices higher, but is still unconvinced higher interest rates are the answer.
Oil lost 0.675 percent on Wednesday. West Texas is trading at $52.69 after data from the Energy Information Administration (EIA) released today pointed to supply still outstripping demand for energy. While inventories were down, a drawdown of 2.2 million barrels, US production is climbing rapidly to take advantage of current prices made possible by the OPEC agreement.
US refineries are coming out of maintenance mode and it showed with the largest drawdown this year showcasing the two side of the oil showdown. The OPEC, Russia and other big producers have joined in a historic production cut but on the other side those that are not taking part in the deal have ramped up production. US and Canadian shale operations have thrived ahead of the American driving season will see further demand being met domestically.
Market events to watch this week:
Thursday, April 13
8:30am CAD Manufacturing Sales m/m
8:30am USD PPI m/m
8:30am USD Unemployment Claims
10:00am USD Prelim UoM Consumer Sentiment
Friday, April 14
8:30am USD CPI m/m
8:30am USD Core CPI m/m
8:30am USD Core Retail Sales m/m
8:30am USD Retail Sales m/m