The Canadian dollar rose after the release of the weekly U.S. crude oil inventories. Figures from the Energy Information Administration (EIA) showed a drawdown of 3 million barrels. The fall in weekly stock was not expected, as forecasts called for a buildup after four consecutive drawdowns. The Canadian dollar had been lower earlier in the trading session, after trade data was released with a narrowing of the trade deficit to $1.47 billion in August.
The Bank of Canada (BoC) is not expected to cut interest rates in two weeks despite the mixed tone of the trade report. The central bank has been awaiting the results of the fiscal stimulus launched by the government earlier this year and will continue using dovish rhetoric to keep the loonie from appreciating. Non-resource exports have not picked up as much as the BoC expected and the fate of oil prices is very much up in the air, as the Organization of the Petroleum Exporting Countries (OPEC) production cut is subject to a more detailed agreement in the meeting in Vienna.
After the debacle of the Doha sessions it seems the OPEC seems to be checking all the boxes to avoid the meeting ending up as a failure to reach an agreement that is beneficial to all parties.
The CAD appreciated despite solid economic data out of the U.S. The ADP private payrolls added 154,000 jobs around 12,000 less than expected in September. The miss was not massive enough to warrant USD weakness and was balanced against a strong ISM non-manufacturing PMI that posted a 57.1 reading.
The strong rebound in the non-manufacturing sectors was across the board, as nearly all subcomponents showed an increase with the employment component rising 6.5 points, which could signal a positive U.S. nonfarm payrolls (NFP) number.
The USD/CAD lost 0.267 percent in the last 24 hours. The pair is trading at 1.3166, after the lower than expected U.S. crude inventories boosted the price of oil. The heavy correlation between energy prices and the loonie was made present as the currency reversed course after the 10:30 am EDT release of inventories. Earlier in the session, the loonie was trading above the 1.32 price level awaiting crude stocks and promptly broke under to settle at 1.3166.
Canadian stocks rose boosted by the rise in oil prices. The next move by oil producers will probably come before November as non-OPEC members will be brought into the conversation in order to get a bigger agreement in order to stabilize prices in the long run.
West Texas climbed 2.25 percent in the last 24 hours. The price of crude is trading at $49.45 after the Energy Information Administration (EIA) released weekly inventories that showed a fifth consecutive drawdown.
The US inventories dropped by 3 million barrels and sent the price of oil higher after forecasters were anticipating a buildup of around 2 million barrels. The news of an OPEC output cut agreement and the drawdowns in U.S. stocks pushed oil to a three month high.
Employment week continues and with the data from the ADP and the ISM non-manufacturing PMI signalling a solid NFP number there are questions on how much will it change. The Fed has in the past ignored positive NFP numbers if the rest of the economy was not ready for a hike. Today the Fed’s Lacker said that there are signs that inflation is heating up. A move in December is heavily favoured, but between then and now, the U.S. economy still has to show it has enough growth momentum.
A strong NFP reading on Friday, especially in the wages component, would lift the USD across the board. Vice versa, even with a strong headline jobs number, a subdued wage growth will be negative for the U.S. currency, which is gaining based on the interest rate divergence expectations, if the Fed decides to pull the trigger on its December Federal Open Market Committee (FOMC).
Market events to watch this week:
Thursday, October 6
8:30am USD Unemployment Claims
Friday, October 7
8:30am CAD Employment Change
8:30am CAD Unemployment Rate
8:30am USD Average Hourly Earnings m/m
8:30am USD Non-Farm Employment Change
8:30am USD Unemployment Rate