USD/CAD – Loonie Higher After Oil Recovers

The Canadian dollar had a positive start of the trading week as U.S. data was softer and the price of energy recovered during the North American trading session. The loonie has been on the back foot due to a strong Fed rhetoric from policy members that has boosted the USD, the volatile nature of the price of oil that awaits the April 17 Doha output freeze summit and finally the release of the Canadian federal budget, while not a disappointment was indeed cautious.

Fedspeak gave a shot in the arm to the greenback after a more dovish than anticipated FOMC meeting in March. The U.S. Federal Reserve took a more patient tone and given the global growth scenario is in no rush to hike rates. After the failure of the European Central Bank (ECB) quantitive easing bombshell and press conference fiasco markets are not following central bank “guidance” as they did in the past. The diverging monetary policy has eroded investor trust.

U.S. St. Louis Federal Reserve President James Bullard issued strong statements about the central bank’s rate decision in March and has put the Federal Open Market Committee (FOMC) meeting in April as “live”. The comments from the voting member of the FOMC gave the USD a boost across the board after central bank action and the Brussel attacks had created volatile trading conditions.

The Fed has been under fire for holding rates unchanged at 0.50 percent in March after the much anticipated December rate hike. U.S. fundamentals haven’t changed drastically, yet the Fed has decided to exercise more patience. Central banks around the globe are facing credibility issues as the European Central Bank (ECB) and the Bank of Japan (BOJ) have announced additions to their stimulus programs that have failed to moved the needle. Bullard’s comments have addressed the U.S. central bank logic behind the decision to keep rates on hold, and has hinted at a rise in rates soon.

The USD has retreated 0.63 percent versus the CAD in the last 24 hours. The pair is trading at 1.3181, close to session lows after starting the week at 1.3285. The Canadian dollar remains tied at the hip with the price of oil. The supply glut has shown very limited signs of a slowdown, while the mercurial temper of the Organization of the Petroleum Exporting Countries (OPEC) and Russia have energy trader’s anxiety through the roof as they await the Doha summit on April 17.

West Texas oil jumped 0.13 percent during a thin holiday trading session. The USD was softer at the start of the trading week and commodities and their related currency pairs took advantage to move higher against the big dollar.

Canadian data will be scarce this week. The monthly GDP number will be the strongest fundamental argument put forth in the North as the forex market will be gearing up for the release of the U.S. non farm payrolls (NFP) report on Friday. The Canadian employment report will be pushed back to next week. After the impact Fed speakers had on the markets the next event becomes Fed Chair Janet Yellen’s speech on Tuesday at 12:20 EDT takes more prominence to await if her views have changed since the rather dovish March FOMC statement and press conference. Fed facts put the USD in a tailspin until Fed speak boosted the currency against majors. Chair Yellen will have a tough time trying to spin a coherent narrative between the two, but if the credibility of central bank is to be regained she has to make an effort. The backdrop of a deluge of American employment data could be positive for the dollar, if Yellen pulls it off, but could open some concerns if she hints at growing dissent inside the U.S. central bank.

USD/CAD events to watch this week:

Tuesday, March 29
10:00 am USD CB Consumer Confidence
Wednesday, March 30
8:15 am USD ADP Non-Farm Employment Change
10:30 am USD Crude Oil Inventories
Thursday, March 31
8:30 am CAD GDP m/m
8:30 am USD Unemployment Claims
9:00 pm CNY Manufacturing PMI
9:45 pm CNY Caixin Manufacturing PMI
Friday, Apr 1
8:30 am USD Average Hourly Earnings m/m
8:30 am USD Non-Farm Employment Change
8:30 am USD Unemployment Rate
10:00 am USD ISM Manufacturing PMI

*All times EDT