The Canadian dollar depreciated on Tuesday after traders in Canada and the United States came back from holidays. Commodity currencies have been under performers this year as prices remain low. The Organization of the Petroleum Exporting Countries (OPEC) surprised markets with a tentative agreement to cut oil production and to discuss with non-OPEC members in an effort to stabilize energy prices. So far the strategy has worked although there is little in way of details around what those productions cuts will do to moderate demand growth.
The second U.S. presidential debate took place on Sunday and markets responded positively to what was considered a win for the Clinton camp. The more uncertainty that is taken out of the presidential elections the more markets will reassume normal trading conditions. Although if anything this year has changed the very definition of normal. Case in point the fall in the British pound. Cable traders continue to track the sudden drop of the currency just as pro-Brexit supporters were proud to point out that little impact had been felt in the economy despite the warnings of experts. The GBP is now the worst performing currency in the major pairs.The USD/CAD gained 0.547 percent in the last 24 hours. The pair is trading at 1.3245 after oil prices were volatile with contradictory statements from the OPEC and within Russia. The strength of the USD also factored into the downward move for the CAD.
Canadian housing starts surprised to the upside with 220,617 units in September, up from 184,201 a month ago and beating the forecast for 190,000. Condos were up 22.3 percent and single detached urban homes rose 14.5 percent. Ontario did not see a rise in homebuilding and analysts expect the measures taken by the Federal government to begin to slowdown the rise of house prices as more strict stress tests will be needed to grant mortgages by financial institutions.West Texas lost 0.795 percent today and is trading at $50.55 after comments from Russian energy company Rosneft said it would not back the OPEC production cut despite the words of President Putin announcing Russia was ready to join in with other producers and curb oil production. Rosneft is setting its 2016 production levels above those of last year which prompted the rally in oil prices to come to a stop as question marks remain on what exactly will a token cut in production can do for oil prices long term.
Speaking about terms, another factor impacting energy prices is the proposed 6 month term to be discussed tomorrow. OPEC infighting was the main reason for the failure of the Doha summit, but this time around despite Saudi Arabia’s change in strategy the other major producers are not as eager to join the group’s efforts to stabilize prices by minimizing their profits when it appears verbal intervention has has the best results.
The release of U.S. crude inventories will be push back one day from its regular weekly release to Thursday at 10:30 am EDT. Forecasts are calling for a small buildup after a string of drawdowns that amplified the effect of the OPEC announcement.
The anticipated next move for the U.S. Federal Reserve is a rate hike in the December Federal Open Market Committee (FOMC) meeting. The rate hike expectations are driving the USD higher, even if there are still members who believe its better to be patient with the moderate growth of the U.S. economy rather than act now. The minutes from the September meeting will be released tomorrow at 2:00 pm EDT and will add some insights into the debate at the core of the Fed about what is the right course to take as the December deadline approaches. The deadline was for the most part self-imposed after the Fed’s forecast saw up to 4 rate hikes at the beginning of the year. Not hiking at all could further erode the confidence of the market on the Fed’s ability to correctly forecast the economy as well as take the right actions if needed.
Market events to watch this week:
Wednesday, October 12
2:00pm USD FOMC Meeting Minutes
Tentative CNY Trade Balance
Thursday, October 13
8:30am USD Unemployment Claims
11:00am USD Crude Oil Inventories
Friday, October 14
8:30am USD Core Retail Sales m/m
8:30am USD PPI m/m
8:30am USD Retail Sales m/m
10:00am USD Prelim UoM Consumer Sentiment
*All times EDT
For a complete list of scheduled events in the forex market visit the MarketPulse Economic Calendar
About Alfonso Esparza
Senior Currency Strategist, OANDA, Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, he established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto. Follow on Twitterand on his Google+ profile.