USD/CAD Canadian Dollar Lower Even as USD Caught in Political Drama
The Canadian dollar was lower versus its American counterpart on Tuesday. The loonie had no support from oil prices as concerns about Libyan output will tip the scales in favour of the oil glut remaining in the market despite the efforts of the Organization of the Petroleum Exporting Countries (OPEC) and other major producers to cut production levels for another 9 months.
The price of West Texas remains under $50 after the news that Libyan production will return to 800,000 daily barrels after the disruption in the Sharara field has been sorted. The release of weekly inventories on Thursday at 11:00 am EDT will be a powerful driver of oil prices as there is a lot of scepticism in the market about the expected results from the OPEC cut agreement extension when the US shale industry is rapidly ramping production.
The Canadian stock market was mixed as Scotiabank beat earnings forecasts bringing solid results for Canadian banks after their surprise downgrade by Moody’s. The ratings agency deemed that the housing market is facing a speculative bubble that threatens the banks. Energy stocks fell alongside the price of oil and in general the stock market was subdued as political risks rose in Europe and the United States.
The USD/CAD gained 0.043 percent in the last 24 hours. The currency pair is trading at 1.3454 after producer prices rose in Canada for the eight month in a row. Canadian fundamentals have been mixed and tomorrow’s release of the Canadian monthly GDP will bring clarity on the direction of the loonie.
The US dollar got a boost from Fed Speaker Brainard as the known dove deemed a rate hike soon to be appropriate. Investors are pricing in the possibility of a rate hike in June as 88.8 percent using the CME Fedwatch tool methodology based on Fed funds futures prices. Consumer confidence was lower than expected earlier today but remains strong at 117.9. The paradigm between a strong consumer confidence but weak retail sales continues as Americans are opting to save. Employment data has been the strongest evidence of a recovery, but the headline numbers are not enough for the U.S. Federal Reserve that is now more focused on wage growth. The U.S. non farm payrolls (NFP) report will be published this Friday, June 2 at 8:30 am EDT, with a forecast of 186,000 new jobs added in May.
The price of oil lost 0.611 percent on Tuesday. The West Texas Intermediate is trading at $49.42 as concerns that the OPEC and other major producers agreement to extend the production cut might not be enough to curb the current glut in crude inventories. Energy prices fell in 2014 as Saudi Arabia pushed a market share grab strategy by ramping up production to drive prices and force US shale producers into default. The strategy backfired as low rates helped shale operations service their debts even at lower prices and the OPEC is now caught in a vicious circle where it is up to them to rebalance the market by removing the excess production.
Weekly US crude inventories are usually published on Wednesday’s but due to the Memorial Day holiday it will be pushed back a day to Thursday at 11:00 am EDT.
Market events to watch this week:
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
