The Canadian dollar is trading lower at 1.3523 after the USD erased all loses versus the loonie on Tuesday. The greenback regained traction ahead of the release of the U.S. Federal Reserve minutes from the monetary policy meeting earlier in May. The Fed is heavily anticipated to hike rates in the next meeting with the market searching for insights on the document released on Wednesday.
Building materials and supplies drove Canadian wholesale trade 0.9 percent higher in March. There sales figures were the lone economic data release on Tuesday following the Victory day holiday. Investors will be awaiting the rate decision by the Bank of Canada (BoC). The Canadian central bank will release its rate statement on Wednesday, May 24 at 10:00 am EDT. The BoC is heavily expected to hold rates unchanged despite growing pressure from a hot house market in major cities. The CAD has been caught between a falling loonie and the more aggressive tone of the US regarding the NAFTA renegotiation. The US has set in motion the process needed to renegotiate the deal in late August. BoC Governor Stephen Poloz is expected to address the household debt and real estate market with mentions about the upcoming trade negotiations.
The release of weekly US oil inventories at 10:30 am EDT will impact the USD/CAD pair given the high correlation between crude prices and the loonie. The tone of the rhetoric from the Canadian central bank and the actual change in the American oil inventory will be a preamble for the release of the Fed minutes at 2:00 pm EDT. The Fed did not update its benchmark rate from its 75 to 100 basis points range and offered little clues on the brief statement released after the FOMC meeting ended. The notes from the monetary policy meeting will shed some light on the different opinions from members on the current rate hike path and a long shot but also the possibility of a time frame for its plans to reduce its massive balance sheet.
The USD/CAD gained 0.105 percent in the last 24 hours. The currency pair is trading at 1.3523 after the USD staged a comeback in the North American trading session. The pair went from a daily low of 1.3456 and quickly went above the 1.35 price level to near daily highs where it is currently trading. Oil prices boosted the loonie on Monday and early trading Tuesday coupled with a strong wholesale trade data in Canada but as traders booked their profits on a weak USD and repositioned for a slightly hawkish Fed minutes the greenback bounced back.
The Bank of Canada is forecasted to hold as the economy is still struggling to regain the momentum is lost with the drop in oil prices two years ago. With the Fed all set to hike rates in June, this will widen the interest rate gap between the two economies. Trade disputes and the more aggressive tactics by the US to solve them are also a concern as Canada exports two-thirds of exports to its southern neighbour.
The price of oil gained 0.926 percent on Tuesday. The West Texas Intermediate is trading at $51.14 ahead of Wednesday’s release of the weekly US crude inventories. Another drawdown is awaited, marking 7 contractions in a row in US inventories. The US President Donald Trump proposed to sell half of the strategic oil reserve starting in October. Ironically the fund was started in 1975 to avoid a repeat of gas price surges during the Arab oil embargo. The Organization of the Petroleum Exporting Countries (OPEC) is now once again cutting production, but even with all the members and other influential producers such as Russia they can only keep the price stable. US production has grown to the point where it could justify the sale of the emergency stocks stored in Louisiana and Texas. Although it is hard for this to be approved by congress, specially now, but it does send a signal to OPEC ahead of Thursday’s meeting on their cut production agreement extension.
Market events to watch this week:
Wednesday, May 24
8:45am EUR ECB President Draghi Speaks
10:00 am CAD BOC Rate Statement
10:00 am CAD Overnight Rate
10:30 am USD Crude Oil Inventories
2:00 pm USD FOMC Meeting Minutes
10:00pm NZD Annual Budget Release
Thursday, May 25
4:30 am GBP Second Estimate GDP q/q
All Day ALL OPEC Meetings
8:30 am USD Unemployment Claims
Friday, May 26
8:30 am USD Core Durable Goods Orders m/m
8:30 am USD Prelim GDP q/q