The Canadian dollar appreciated after the release of the Federal Open Market Committee (FOMC) September meeting minutes. The U.S. Federal Reserve announced the details of its balance sheet reduction plans at the September meeting and voted unanimously to keep rates unchanged but the big question mark remained on the internal debate on inflation. There are mainly two camps at the US central bank. Those who believe inflation is too low and therefore it is wrong to hike rates. In the other hand the second group believes that waiting for inflation to catch up could be a mistake.
So far the hawks have been in the lead with two interest rate advances already in 2017. A third and final rate hike could happen in December with inflation having a big say. Many policymakers still see another rate move as a positive and the market seems to agree pricing the move in December with a 87 percent probability. Inflation data will be key with the upcoming US consumer price index (CPI) release on Friday potentially the biggest economic indicator this week.
The USD continues to struggle with the Trump campaigns failure to pass a strong reform. The political capital that was spent in the first three quarters of the year has left the White House exhausted and depleted with little to show. The tax reform was supposed to be part of a one-two punch along with infrastructure spending.
NAFTA comments from US President Donald Trump were not too optimistic on the renegotiation of the trade deal. Trump offered Canada a chance to negotiate a free trade directly if talks fail.
The USD/CAD lost 0.40 percent since the Asian market open. The currency pair is trading at 1.2455 after touching daily lows with the release of the FOMC September minutes. The Fed is still expected to lift rates in December but the USD could not take advantage as that move has already been priced into the currency. Political uncertainty in the US has kept the greenback grounded.
New House prices in Canada will be released with a small gain of 0.3 percent expected. While real estate has been a concern for the Bank of Canada (BoC) due to inflated prices and high levels of debt to service mortgages it seems that higher rates and stringent regulation have cooled the market. BoC deputy governor Carolyn Wilkins will speak on Thursday, October 12 at 3:15 pm at the Institute of International Finance Annual meeting in Washington. Communication might be one of the areas the central bank wishes to improve after staying mum ahead of the September meeting that took the market by surprise with the second rate hike in 2017.
Energy prices closed nearly flat on Wednesday. The price of West Texas Intermediate close above $51 with the Organization of the Petroleum Exporting Countries (OPEC) positive outlook on global demand. The group announced a 200,000 barrel jump in demand and with the efforts alongside Russia and other major producers the market is close to rebalancing.
Oil prices have risen since rumours are circling about an extension of the production cut agreement. Weather and geopolitical disruptions to supply have also lifted prices higher. The black stuff remains range bound as every effort by OPEC and Russia is met with rising production out of the US, Canada and Brazil.
US crude inventories will be released on Thursday, at 11:00 am EDT. The weekly data was pushed one day later due to the Columbus Day holiday. Crude stocks are forecasted to remain in negative territory with a 1.9 drawdown.
Market events to watch this week:
Thursday, October 12
8:30am USD PPI m/m
8:30am USD Unemployment Claims
10:15am EUR ECB President Draghi Speaks
11:00am USD Crude Oil Inventories
Friday, October 13
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