The Canadian dollar is trading in the middle of the weekly range against the USD. The USD/CAD had a volatile ride this week as US political turbulence and the lack of surprise in the Organization of the Petroleum Exporting Countries (OPEC) deal extension had the loonie bouncing between 1.3388 and 1.3546 to settle at 1.3463.
The Canadian government posted a preliminary budget deficit of C$21.85 billion for the 2016–2017 fiscal year. The previous government had incurred in a C$1.96 billion deficit, but the jump is due to the promise from the liberal government to stimulate the economy to boost spending. The Bank of Canada (BoC) stood pat this week holding rate at their historic lows of 0.50 percent but managed to pull a balanced assessment of the economy.
While recognizing the threats of a housing bubble that has been fuelled by speculators, there is still slack and opportunities going forward. The central bank cut rates twice in 2015, but has remained in the sidelines ever since. The government has stepped up their stimulus and as it stands analysts see a rate hike late this year or by March of 2018 all depending on economic data.
The USD/CAD is flat on Friday trading. The currency pair is trading at 1.3463 after a volatile week for oil prices. The OPEC decision to not announce anything beyond what was already known cause a sudden 5 percent drop in prices. On the last trading day of the week crude prices had bounced back by 0.695 percent.
The Bank of Canada kept rates unchanged on Wednesday but with a more positive outlook the CAD was still headed for a weekly loss as the minutes from the U.S. Federal Reserve meeting in May were released and the June rate hike is still very much on the table. The comments form fedspeakers has been positive for the dollar and the release on Friday, June 2 of the U.S. non farm payrolls (NFP) could further validate the decision by the US central bank to keep hiking rates. That will widen the gap with Canadian rates that have stood unchanged since 2015 and could remain that way until 2018.
Next week will be mostly USD data on display with a shortened week due to the Memorial Day holiday in the US. Canada will release the monthly Gross Domestic Data (GDP) on Wednesday, May 31 at 8:30 am EDT and the Trade Balance on Friday, June 2 at 8:30 am EDT. The highlight of the week for investors will be the further development of the Russian probe in Washington and the U.S. non farm payrolls (NFP) on the economic release calendar on Friday.
Gold gained 1.032 in the last five days. The yellow metal is trading at $1,266.02 after geopolitical turmoil has made investors turn to a safe haven. The US probe into Russian connections within the Trump administration and the stronger tone on North Korea from President Trump ahead of the G7 meeting in Italy have shifted the focus away from Europe. The UK elections on June 9 and French parliamentary elections on June 11 are full of uncertainty, specially after the fumbles in the UK Conservative party have closed the gap of what was considered a slam dunk win back when the snap election was called.
Gold has advanced even as the Fed minutes kept the June rate hike on the table, and comments from various Fed members have been net positive of multiple rate hikes needed sooner rather than later. The main reason is that a rate increase by the American central bank has been mostly priced in already with the market assigning a probability of 87.7 percent that the June 14 Federal Open Market Committee (FOMC) will end up with a 100 to 125 basis points range. The market’s optimism does not extend to the December meeting with only 36.7 percent of the rate going to the 125 to 150 basis points range.
Oil lost 2.55 in the last week. The price of West Texas Intermediate is trading at $48.64 after the Organization of the Petroleum Exporting Countries (OPEC) meeting in Vienna ended with no surprises about the 9 month extension to the production cut agreement with members and other major producers agreeing to extend the deal until the end of March 2018.
The OPEC might have revealed too much ahead of the meeting as this time they stuck to the script that was offered when Saudi Arabia and Russia issued a joint statement backing the extension on May 15. The market quickly priced in that information but as rumours and comments circled that nothing was set and there could be a possible longer time frame and deeper cuts the price of oil surged. When those proved to be unfounded as the OPEC and other producers announced that the terms were exactly those from the Saudi Arabia and Russia statement there was a sell off of crude.
The price of oil is trending upwards on Friday’s trading and in the midterm it will depend more on global inventories for direction. Last week US inventories shrank by 4.4 million barrels almost doubling the forecasted number. US production will also keep prices near current levels, but a weak dollar might help the OPEC move the price towards the $60 price level.
Market events to watch this week:
Monday, May 29
9:00 am EUR ECB President Draghi Speaks
Tuesday, May 30
10:00 am USD CB Consumer Confidence
5:00 pm NZD RBNZ Financial Stability Report
Wednesday, May 31
8:30 am CAD GDP m/m
9:30 pm AUD Private Capital Expenditure q/q
9:30 pm AUD Retail Sales m/m
Thursday, Jun 1
4:30 am GBP Manufacturing PMI
8:15 am USD ADP Non-Farm Employment Change
8:30 am USD Unemployment Claims
10:00 am USD ISM Manufacturing PMI
11:00 am USD Crude Oil Inventories
Friday, Jun 2
4:30 am GBP Construction PMI
8:30 am CAD Trade Balance
8:30 am USD Average Hourly Earnings m/m
8:30 am USD Non-Farm Employment Change
8:30 am USD Unemployment Rate