The Canadian dollar appreciated on Thursday versus the US dollar as investors took gains from an earlier greenback rally ahead of the end of September. The loonie traded lower on Wednesday after Bank of Canada (BoC) Governor Stephen Poloz gave a more dovish speech than expected cooling anticipation of an upcoming rate hike. The central bank had surprised the markets in July and once again in September. The Canadian benchmark rate is 1.00 percent after the two 25 basis points hikes, back to its 2015 level.
The USD rally could not be sustained ahead of the end of the week with no upcoming data. The US gross domestic product (GDP) final estimate for the second quarter beat expectations at 3.1 percent leaving investors to wait until next week for another telling economic indicator. Traders took profits on their positions and will reassess the market ahead of US jobs data next week.
NAFTA negotiations made progress as difficult topics were discussed, but so far no clear decisions have been made. The timing of the US Commerce Department 220 percent duty on Bombardier jets has not derailed the talks, but its impact would have been felt within the trade talks. Mexican negotiations have already started to think the late 2017 goal of renegotiating the trade agreement is too optimistic and are now open to the possibility of talks going into 2018. The next round of negotiations will take place in Washington on October 11 through the 15.
The USD/CAD lost 0.278 percent in the last 24 hours. The currency pair is trading at 1.2430 as the boost from the Fed and President Trump’s tax plans was short lived as there were so many details missing. Fed Chair Janet Yellen still sees the best path to be one of gradual rate hikes rather than wait for inflation to pick up. Probabilities of a December rate hike have gone up. The Trump administration is starting its push of tax reforms, but with so much political capital squandered since the beginning of the year.
The loonie mounted a comeback ahead of gross domestic product data on Friday, September 29. Monthly Canadian GDP is expected to come in at 0.1 percent, marketing a slowdown from the impressive pace this year. Last month the GDP grew by 0.3 percent monthly and 4.5 percent annually fuelled by consumer spending. The Bank of Canada (BoC) has stressed that higher rates could impact consumer negatively as household debt has climbed to record levels.
Energy prices lost 1.024 on Thursday. West Texas Intermediate is trading at 51.24 as US oil production rose 9 percent during the last three weeks offsetting reports of stronger forecasted demand and a possible Organization of the Petroleum Exporting Countries (OPEC) cut agreement extension. Saudi Arabia used overproduction as a strategy to grab market share and drive prices lower with the intent to drive the US shale industry into bankruptcy. The strategy backfired as the flexibility of US drillers and low rates made it easier to service the debt and wait for the OPEC to reach an agreement with other major producers.
Oil traders continue to monitor the situation in Northern Iraq. Supply disruptions have been one factor driving prices up in the past, but so far the referendum for independence has not been recognized. Turkey and other allies of Iraq have threatened the Kurdish region with cutting off the access to international markets of their oil if they continue on this path. The potential impact to global supply would be of around 500,000 daily barrels.
Market events to watch this week:
Friday, September 29
4:30am GBP Current Account
8:30am CAD GDP m/m
