The Canadian dollar traded in a narrow range on Monday. The loonie ended last week lower versus the USD as tax reform hopes and a strong U.S. non farm payrolls (NFP) was released on Friday. The loonie remains close to the levels it ended at then and with little Canadian data releases this week it will be mostly driven by US indicators. Inflation data in the US will be published by the Bureau of Labor Statistics on Wednesday, December 13 at 8:30 am. Core CPI is expected to gain 0.2 percent but prices taking into consideration food and energy are forecasted to increase by 0.4 percent.
The U.S. Federal Reserve will release its quarterly economic projections and Federal Open Market Committee (FOMC) statement on Wednesday, December 13 at 2:00 pm EST. The highly anticipated December meeting of the Fed is expected to bring a 25 basis points rate hike. The market has already priced in that move as it was heavily telegraphed by policy makers. Economists are forecasting 3 rate hikes in 2018 and the dot-plots could align with those estimates. Fed Chair Janet Yellen will make her final appliance as Chair when she hosts the FOMC press conference at 2:30 pm EST.
Bank of Canada (BoC) Governor Stephen Poloz will deliver a speech in Toronto titled: “Three Things Keeping Me Awake at Night”. The central bank has gone from a hawkish cheerleader of the economy in the summer to a dovish bystander as so many unknowns complicate the path of interest rates in Canada. Rising household debt is a concern as inflation could rise forcing the BoC into higher rates. The gap with the Fed will continue to grow unless the economy can shake off the Q3 slowdown but there is little evidence of that despite strong job numbers last month.
The USD/CAD gained 0.8 percent on Monday. The currency pair is trading at 1.2857 near flat from the close of the market on Friday. The loonie has depreciated more than 1.34 percent in December as the Bank of Canada (BoC) was dovish and kept rates unchanged in the last statement while the market has fully priced in a rate hike by the U.S. Federal Reserve this week. The meeting will be Fed Chair Janet Yellen’s last hurrah as she steps down in February to make way for her successor Jerome Powell. Polls point to 3 rate hikes in 2018 and with Powell having a chance to reshape the Fed by filling so many open positions it will be interesting to see how quickly can he put his stamp on monetary policy.
The Trump administration is near its biggest accomplishment to date if they can reconcile the two tax bills despite mounting pressure from various citizen groups. The NAFTA negotiations will restart next week but with no clear goal in sight the talks are sure to carry over to next year despite both Mexico and the United States having elections which could distract from the original objectives.
Oil prices rose in the last 24 hours. The price of West Texas Intermediate is trading at 57.87 after a disruption of North Sea supply and the after effects of a terrorist attack in New Y York. The Forties pipeline was shut down for repairs and could take weeks to get back online. The pipeline carries 450,000 daily barrels into Scotland, 40 percent of the UK’s oil and gas production. A hairline crack was discovered on Wednesday and the line was running at reduced pressure since then.
Supply disruptions have been the third major factor driving oil prices of late. The Organization of the Petroleum Exporting Countries (OPEC) oil cut agreement with other producers and the rise of US shale production have offset each other. Natural and geopolitical issues have caused disruptions which in turn have driven the price of crude higher.
The OPEC successfully pulled off an extension of its deal with other major producers until the end of 2018. Demand continues to stagnate which could undo all the hard work of negotiators to stabilize prices at current levels if oil producers that are not part of the agreement like Brazil, Canada and the United States start ramping up their production significantly to take advantage of higher prices.
Market events to watch this week:
Tuesday, December 12
4:30 am GBP CPI y/y
8:30 am USD PPI m/m
Wednesday, December 13
4:30 am GBP Average Earnings Index 3m/y
8:30 am USD CPI m/m
8:30 am USD Core CPI m/m
10:30 am USD Crude Oil Inventories
2:00 pm USD FOMC Economic Projections
2:00 pm USD FOMC Statement
2:00 pm USD Federal Funds Rate
2:30 pm USD FOMC Press Conference
7:30 pm AUD Employment Change
7:30 pm AUD Unemployment Rate
9:00 pm CNY Industrial Production y/y
Thursday, December 14
3:30 am CHF Libor Rate
3:30 am CHF SNB Monetary Policy Assessment
4:00 am CHF SNB Press Conference
4:30 am GBP Retail Sales m/m
7:00 am GBP MPC Official Bank Rate Votes
7:00 am GBP Monetary Policy Summary
7:00 am GBP Official Bank Rate
7:45 am EUR Minimum Bid Rate
8:30 am EUR ECB Press Conference
8:30 am USD Core Retail Sales m/m
8:30 am USD Retail Sales m/m
8:30 am USD Unemployment Claims