Canadian Dollar Lower Ahead of Stormy Weather

The Canadian dollar depreciated on Friday versus its U.S. counterpart but is still on course to a higher than 2 percent gain in the last week. The short week due to Labor Day celebrations in both Canada and the U.S. saw the loonie appreciate on the back of a surprise rate hike by the Bank of Canada. Several central banks turned hawkish in June and comments from the BoC governor and deputy governors convinced the market a change in monetary policy was coming and fast. The Canadian central bank followed those comments with a rate hike in July and it was heavily anticipated that another hike would be coming, most likely in October. The market was caught off guard by the announcement on Sept. 6 that the benchmark Canadian interest rate was now back to 1.00 percent.

The Canadian economy added 22,000 jobs in August pushing the unemployment rate down to 6.2 percent. While the headline number was positive digging deeper there were some concerns about the quality of the jobs. Part-time jobs gained 110,400 last month, while full-times jobs were lost at an alarming 88,100 positions. Wage growth could be the deciding factor with hourly pay up by 1.7 percent and putting some pressure on the Bank of Canada to follow up the July rate hike with one in December.

USD/CAD for Sept. 4-8, 2017.

The USD/CAD lost 2.066 percent in the last five trading days. The currency pair is trading at 1.2138 after touching a weekly low of 1.2062. The loonie surged after the surprise rate hike announcement by the Bank of Canada. The central bank raised rates by 25 basis points and while not a complete shock as the move was expected in October the eagerness from BoC Governor Stephen Poloz caught the market by surprise.

On Friday, despite strong headline employment data out of Canada, the concerns around full-time job losses kept the loonie on uncertain ground as crude also retreated after a strong week ahead of Hurricane Irma’s approach of U.S. shores. The USD/CAD advanced 0.082 cutting the loonie rally short ahead of major geopolitical and natural events during the weekend. Next week’s economic calendar is thin for Canadian indicators, with inflation gauges in the U.K. and the U.S. to create volatility in the market as well as the Bank of England, which releases its monetary policy summary and rate statement on Thursday.

WTI for Sept. 4-8, 2017

West Texas Intermediate rose 0.607 percent in the last five days. U.S. crude is trading at 47.44 as Texan refineries are coming back online albeit slowly. Hurricane Harvey had a big impact on refineries creating a glut of crude but a shorter supply of gasoline. That situation is getting better, but with Hurricane Irma threatening oil platforms in the Gulf the situation could be reversed going into the weekend.

Despite the recovery of prices during the week oil posted a drop on Friday as the tropical storm is headed towards Florida which could affect demand for energy. Oil rig counts continue to be unaffected and added to the U.S. crude stocks report there is ample supply of crude, also pushing down prices. Rumours out of China for lower demand and new estimates on how fast Texan refineries could be out has also limited the recovery of oil prices.

Gold.

Gold rose 1.711 in the past five days. The yellow metal is trading at $1346.99, its highest price in 12 months. Geopolitical turmoil in particular regarding the situation with North Korea and the problems within the White House to put together a strong tax reform, debt ceiling and NAFTA renegotiation while at the same time responding to another approaching Hurricane have forced investors to look for safe havens.

The USD is struggling to regain momentum and with the Fed facing concerns about a third rate hike, the precious metal has advanced. The release of U.S. inflation indicators could do more damage to the probabilities of a December rate hike than to the price of gold as an inflation hedge.

Market events to watch this week:

Tuesday, Sept. 12
4:30 a.m. GBP CPI y/y
Wednesday, Sept. 13
4:30 a.m. GBP Average Earnings Index 3m/y
8:30 a.m. USD PPI m/m
10:30 a.m. USD Crude Oil Inventories
9:30 p.m. AUD Employment Change
10 p.m. CNY Industrial Production y/y
Thursday, Sept. 14
3:30 a.m. CHF Libor Rate
3:30 a.m. CHF SNB Monetary Policy Assessment
4:30 a.m. GBP Retail Sales m/m
7 a.m. GBP MPC Official Bank Rate Votes
7 a.m. GBP Monetary Policy Summary
8:30 a.m. USD CPI m/m
8:30 a.m. USD Core CPI m/m
8:30 a.m. USD Unemployment Claims
Friday, Sept. 15
8:30 a.m. USD Core Retail Sales m/m
8:30 a.m. USD Retail Sales m/m

*All times EDT

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