Bank of Canada expected to stand pat on Wednesday
The US dollar is trading higher against most major pairs. The EUR is the outlier as the USD is down against the single currency ahead of the European Central Bank (ECB) monetary policy announcement on Thursday. The Bank of Canada (BoC) is up first with the Canadian central bank set to releases its benchmark rate statement on Wednesday, October 25 at 10:00 am EDT. The central bank is anticipated to keep rates unchanged after an earlier unexpected rate hike in September that put the benchmark rate at 1.00 percent. A press conference by Governor Stephen Poloz will take place at 11:15 am EDT. Canadian data has underperformed and the loonie is on the back foot against the dollar following the optimism surrounding the Fed Chair announcement and US tax reforms.
US President Donald Trump is set to announce his pick to Chair the U.S. Federal Reserve before November 3. In an informal straw poll during a lunch with Republican Senate leadership Stanford economist John Taylor was the preferred choice. Markets still have Fed Governor Jerome Powell in the lead. Taylor’s approach to monetary policy is said to be more rule based versus Yellen’s data driven approach.
The USD/CAD gained 0.27 percent on Tuesday. The currency pair is trading at 1.2677 ahead of the monetary policy statement from the Bank of Canada (BoC). Investors are not expecting a change in the benchmark interest rate and will focus instead on the monetary policy report and the press conference by BoC governor Stephen Poloz. The Canadian economy surprised with impressive growth in the first half of the year. The pace of recovery prompted the central bank to remove the stimulus it had added in 2015. Restoring the benchmark interest rate to 1.00 percent with two rate hikes in 2017. The market is not pricing in another rate hike this year as the economy is showing signs of slowing down and there are uncertainties about NAFTA negotiations.
Canadian real estate prices have been cooled by the two rate lifts as well as newly announced mortgage rules will come into effect. Household debt has worried the government and the BoC which could leave rates at current level beyond the end of 2017. The U.S. Federal Reserve is not forecasted to keep rising rates beyond 2017 with the December meeting almost at 100 percent probability of a rate hike. Until a new Fed Chair is announced there will be uncertainty on what to expect from the central bank.
The EUR/USD gained 0.24 percent in the last 24 hours. The single currency pair is trading at 1.1779 after positive flash purchasing managers indices in manufacturing and services. The manufacturing PMI came in at 54.5 beating expectations as well as the services PMI that recorded a 55.9 reading. As the monetary policy decision announcement by the European Central Bank (ECB) approaches the EUR is beginning to rise as the market anticipates the reduction of the monthly bond purchases. The ECB is expected to taper its QE program from 60 billion euros, but at the same time extend the duration of the program to avoid putting the recovery of the eurozone in jeopardy.
West Texas Intermediate is trading at $52.15 after Saudi Arabia once again is pleading to rebalance the energy market. An extension of the crude output deal involving the Organization of the Petroleum Exporting Countries (OPEC) and other major producers continues to makes the rounds. The current deal expires at the end of the first quarter of 2018, but talk of an extension could push it back until the end of the year.
The Energy Information Administration (EIA) will release the weekly US inventory data on Wednesday, October 25 at 10:30 am EDT. A 2.6 million drawdown is forecasted for US crude stocks.
Disruptions to the supply chain in Iraq are also keeping prices above the $52 price level. The fallout of the independence movement in Northern Iraq has resulted in the army moving into oil rich areas and supply has been restricted by about 200,000 daily barrels. The impact to global energy inventories is not massive as Southern Iraq houses the majority of production, but oil prices are sensitive to news about reduced supply.
Market events to watch this week:
Wednesday, October 25
4:30 am GBP Prelim GDP q/q
8:30 am USD Core Durable Goods Orders m/m
10:00 am CAD BOC Monetary Policy Report
10:00 am CAD BOC Rate Statement
10:00 am CAD Overnight Rate
10:30 am USD Crude Oil Inventories
11:15 am CAD BOC Press Conference
Thursday, October 26
7:45 am EUR Minimum Bid Rate
8:30 am EUR ECB Press Conference
8:30 am USD Unemployment Claims
Friday, October 27
8:30 am USD Advance GDP q/q
