The Canadian dollar lost ground against the USD at the beginning of the week as the market continue to price in the effect of the Canadian and American jobs reports published on Friday. Canada lost 2,100 jobs while the U.S. non farm payrolls (NFP) came in under expectations at 160,000 new jobs. Unemployment rates remained steady in both nations; 7.1 percent in Canada and 5.0 percent in the U.S.
Wild fires continue to rage near Fort McMurray, the oil sands capital of Canada, providing some support to oil prices. The Canadian economy fundamentals have come in weaker with higher trade deficit and low employment which added to this ongoing natural disaster has the USD advancing on the CAD. The Saudi Arabia shake up of its cabinet hints at further instability of oil markets as there are now less probabilities of a deal to be signed amongst Organization of the Petroleum Exporting Countries (OPEC) and other producers.
Analysts updated their rate hike forecasts after the NFP miss with Barclays (LON:BARC) and Goldman Sachs (NYSE:GS) abandoning the possibility of a rate hike after the June Federal Open Market Committee (FOMC). September becomes the next likely candidate but its impaired by its proximity of the U.S. presidential elections. That leaves the December FOMC as the next best option although the one that would put more egg on the face of the Fed as it would be a year since the last rate hike. Economic conditions have changed but the Fed will catch some of the blame as their Fedspeak did not offer any guidance as monetary policy become reactionary instead of proactive in 2016. June still remains in the running thanks to the rhetoric from Fed speakers who haven’t ruled out a rate hike at the next FOMC.
The USD/CAD rose 0.445 percent in the last 24 hours. The pair broke through the 1.30 price level and it now trades slightly below at 1.2966. The USD rally was slowed down, but did not stop, by the weaker than expected NFP. The loonie has been left at the mercy of disappointing economic data and the price of oil. West Texas crude lost 2.27 percent today and is trading at 42.86 while gold retraced 1.84 percent with a current price of $1,263.
The price of oil is on a downward trend after the recent rise of the USD. Crude is getting support from supply disruptions in Canada due to the wild fires forced shutdowns of Alberta oil sands production. As the market has witnessed before with the Kuwait oil worker strike, supply reductions had a more lasting effect than even the failure to reach an agreement during the Doha meeting.
Cooler temperatures and light rain have raised hope that the fire’s advance will slow down. So far the fire has not reached oil sands operations. Last year it took 2 weeks after wild fires forced a stop in production to get the facilities back in line. As this disaster is still ongoing it is too early to tell when crude production will return to usual levels.
This week will bring little guidance from economic indicators from Canada. Releases in general will be few and far between with the Bank of England (BoE) and the U.S. retail sales figures high on the priority list of scheduled events.
The International Monetary Fund (IMF) said today that the fiscal stimulus measures announced in march will help the Bank of Canada (BoC) by removing some of the burden and limiting excessive risk taking. The organization remarked that while not fully recovered from the oil-shock, the Canadian economy is set for a modest recovery of 1.7 percent, but this does not take into account the effect of the unforeseen wild fires in Alberta.
USD/CAD events to watch this week:
Wednesday, May 11
10:30 am USD Crude Oil Inventories
Thursday, May 12
8:30 am USD Unemployment Claims
Friday, May 13
8:30 am USD Core Retail Sales m/m
8:30 am USD PPI m/m
8:30 am USD Retail Sales m/m
10:00am USD Prelim UoM Consumer Sentiment