USD/CAD – Loonie Soars After Yellen Dovish Remarks

The USD tumbled against the CAD after U.S. Federal Reserve Chair Janet Yellen delivered a speech at the Economic Club of New York. The USD had been weaker after the March Federal Open Market Committee (FOMC) had downgraded economic projections and emphasized the “gradual” nature of future rate hikes. Last week hawkish Fed members tried to put the April FOMC as “live” which saw the greenback recover across the board awaiting confirmation from Yellen today.

Janet Yellen offered a repeat of the topics she addressed during her press conference after the publication of the FOMC statement on March 16. There was a good dose of patience throughout her speech and during the Q&A. The USD had been losing some momentum earlier in the day, but started falling as soon as the speech was made public.

Canadian data was negative this morning as producer prices fell at a faster pace than a year ago, due in large part by the tumble in crude prices. Raw material prices were also lower. The industrial price index moved – 1.1 percent in February eclipsing the forecasted 0.2 percent gain. Fundamentals were not behind the rise of the Loonie as the Canadian dollar took off during Chair Yellen’s speech in NYC.

After hawkish comments from some Fed members last week boosted the USD, Chair Janet Yellen brought the dollar back to earth. Sticking to the points made in the March Federal Open Market Committee (FOMC) statement and her press conference Yellen was clear in communicating it will be gradual recovery. Gradual was the keyword of her speech today before the Economic Club of New York.

The EUR/USD moved higher as soon as the text of the speech was made public. The same dovish tone that had clobbered the dollar after the FOMC meeting on March 16 was present in Chair Yellen’s remarks. The currency pair jumped to 1.1260 and remains there with few surprises expected.

The USD lost 0.86 percent versus the CAD in the past 24 hours. The pair is trading near session lows at 1.3067 and will await the ADP private payrolls report to see if there is another opportunity to break 1.30. Employment will be the key indicator with both private and government data to be released in the U.S.

The head of the U.S. central bank was sure to repeat the mantra of monetary policy: The Fed will act if needed and there is no plan set in stone. If the economic recovery accelerates they will adjust with a higher pace of hikes, likewise if economic conditions worsen they could cut the benchmark interest rate. The readiness for any scenario will not ease the concerns of investors who are still questioning the strength of the U.S. economy.

The Fed has distanced itself form using the headline NFP number as soon as it became apparent that although the U.S. was gaining jobs, the quality was not the same as those lost in during the recession. Signs of wage growth are now the focus that could turn the downward trend on its head, or accelerate the fall of the USD.

The fate of the loonie is tied to the price of energy and the volatility that the Doha Oil Output Summit brings to the market. The talks between Organization of the Petroleum Exporting Countries (OPEC) and Russia has managed to stabilize the price of the black stuff, but given the lack of trust between parties it could unravel at any moment. Not forgetting that even at frozen levels the agreement will not address the issue of oversupply as demand shows not signs of rapid recovery.
USD/CAD events to watch this week:

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