The Canadian dollar started the week on the back foot as the USD recovered some ground during the Asian trading session touching session highs of 1.2932. Oil prices swung wildly in the past 24 hours ending in a net positive gain for the black stuff and helped the loonie reduce its daily losses ahead of Wednesday’s widely anticipated interest rate decision by the Bank of Canada (BoC).

The Canadian dollar appreciated on Friday with the better than expected release of the Canadian jobs report. The economy added 45,500 jobs busting forecasts of 10,000 and forcing a drop in the unemployment rate to 6.5 percent. The American jobs report published at the same time usually takes the spotlight at it also showed a 223,000 job gain south of the border but the rising expectations of the BoC hike rates on its July 12 monetary policy meeting pushed the CAD over the USD.

The probability of a rate hike on Wednesday has gone up considerably since senior BoC policy makers started commenting on the effect of the two rate cuts in 2015 and the fiscal stimulus package launched in 2016. Money markets are pricing in a rate hike on July 12 and a follow up in the December monetary policy meeting to keep the gab between the Canadian benchmark rate and the Fed funds rate from diverging further.

The USD/CAD gained 0.068 percent on Monday. The currency pair is trading at 1.2886 as the USD enjoyed a recovery in the Asian and European session that sent the pair above the 1.29 price level. A modest recovery in oil prices above $44 per barrel helped the loonie end up back above 1.29.

Canadian jobs surprised to the upside with another strong gain. Canada added 45,000 jobs in June, although less full-time positions than in May but a strong showing that dropped the unemployment rate to 6.5 percent. The loonie appreciated after the release as it adds further speculation that the Bank of Canada (BoC) will hike rates on July 12 after several comments from senior central bank members. The Canadian central bank changed its tune on June 11 and started signalling an upcoming rate hike after the two rate cuts in 2015 and the government’s fiscal stimulus seemed to have done their job. The BoC was not forecasted to hike rates until 2018 as there are still major question marks with oil prices and the NAFTA negotiations in the fall, but the pace of growth in the Canadian economy is giving the central bank the confidence to make a move sooner rather than later and keep up with the Federal Reserve.

The Bank of Canada (BoC) monetary policy meeting will be the highlight of the week. Central bank rhetoric in the developed economies has now taken hawkish tone as the European Central Bank (ECB), Bank of England (BoE) and the Bank of Japan (BOJ) have seen improvement in economic growth.

The BoC is ahead of the pack and slightly behind the pack as it carries no quantitative easing program to taper and its benchmark rate is 50 basis points. A 25 basis points in the next meeting would keep it close to the 100–125 basis points of the Fed funds rate.

Oil rose 0.319 percent in the last 24 hours. West Texas Intermediate is trading at $44.40 after comments from Saudi Aramco CEO said on Monday that lack of new discoveries and a drop in investments will contusion global supply of oil. The market does not share the pessimistic view of the state run energy company with supply gaps anticipated to be filled by Brazil, Canada and the United States.

Oil rigs in the US have started to increase as shale operations take advantage of stable prices at current levels. The diplomatic disagreement between Qatar and other Arab nations leaves in question the unified front of the OPEC as Saudi Arabia’s leadership in the group will be questioned. Weekly inventories regain their normal publication date with US crude stocks to be reported on Wednesday, July 12 at 10:30 am EDT.

Market events to watch this week:

Wednesday, July 12
4:30am GBP Average Earnings Index 3m/y
10:00am CAD BOC Monetary Policy Report
10:00am CAD BOC Rate Statement
10:00am USD Fed Chair Yellen Testifies
10:30am USD Crude Oil Inventories
11:15am CAD BOC Press Conference
Thursday, July 13
8:30am USD PPI m/m
8:30am USD Unemployment Claims
10:00am USD Fed Chair Yellen Testifies
Friday, July 14
8:30am USD CPI m/m
8:30am USD Core CPI m/m
8:30am USD Core Retail Sales m/m
8:30am USD Retail Sales m/m

*All times EDT