The Canadian dollar depreciated on Tuesday with little support from Bank of Canada (BoC) Governor Stephen Poloz who gave a speech in Montreal. U.S. Federal Reserve officials Randal Quarles and Fed Chair Janet Yellen did not provide any new insights to markets on the plans of the central bank. The geopolitical risk that was triggered by the arrests in Saudi Arabia over the weekend has faded and the US dollar has reassumed the upward move that was interrupted by the low wage growth data released with the U.S. non farm payrolls (NFP) on Friday.
Inflation was the main topic of Governor Poloz speech where he reiterated the central bank objective is to monitor wage growth, economic capacity and inflation and adjust the interest rate accordingly. The BoC has lifted interest rates twice in 2017 after a surprise growth in the first half of the year. The two rate hikes have cancelled the cuts of 2015 leaving the benchmark rate back at 1.00 percent. A cool down of the economy has been expected and so far the BoC has turned dove with the market further discounting the probability of another rate hike this year.
NAFTA talks will resume on November 15 with the hope of having a working plan before the elections in Mexico and the United States almost abandoned. The uncertainty on the outcome of the negotiations has given traders a headache in trying to value what the potential impact of various scenarios will have on the affected currency pairs.
The USD/CAD gained 0.55 percent on Tuesday. The currency pair is trading at 1.2777 with the USD regaining some of the losses from Monday. The currency pair has been erratic in the start of the week with little economic data to trade on.
The USD continued to be supported by a tightening monetary policy by the U.S. Federal Reserve who has hiked twice in 2017 and is on track to raise rates once again in December. Fed Chair Janet Yellen is set to step down in February, with president Trump already nominating her successor in Jerome Powell, currently a Fed Governor .
Political uncertainty surrounding the fate of the tax reform bill is keeping the USD in a tight trading range as both sides of the spectrum continue to argue on who will benefit the most form the proposed tax cuts.
The price of energy was caught in a tight trading range on Tuesday. West Texas Intermediate is trading at $57.07 after the events in Saudi Arabia saw the price of crude rise, but as the week progresses and more economic indicators are expected the price of oil has been stable.
The arrests of prominent Saudi politicians and businessmen comes at a time when the kingdom is opening too many fronts. The embargo against Qatar, the military offensive in Yemen and the diplomatic/ideological fight with Iran have crown prince Mohammed Bin Salman in common as he is pushing for reform at home and abroad.
The Organization of the Petroleum Exporting Countries (OPEC) released its 2017 World Oil Outlook today and the group is forecasting a rise in shale production and growing demand in the following two years. OPEC and other major producers agreed to cut production to rebalance the energy markets after heavy falls and are now looking at extending for a second time the length of the agreement.
The public statements from producers that are part of the cut agreement have all been positive to the idea of extending the timeline past the March 2018 deadline. Oil rigs in the US have not grown in numbers despite the rise in oil prices, in some cases affected by adverse weather with technological advances increasing productivity.
The showdown between US production, which OPEC is conceding will grow and may eclipse its own members who are committed to reducing supply will continue well into next year. The implications of Saudi Arabia’s leadership will also have far reaching impact as the OPEC itself could end up being fractured as Iran and Saudi Arabia escalate their war of words.
Market events to watch this week:
Wednesday, November 8
11:30 am USD Crude Oil Inventories
4:00 pm NZD Official Cash Rate
4:00 pm NZD RBNZ Rate Statement
5:00 pm NZD RBNZ Press Conference
Thursday, November 9
9:30 am USD Unemployment Claims
8:30 pm AUD RBA Monetary Policy Statement
Friday, November 10
5:30am GBP Manufacturing Production m/m
