USD/CAD – Loonie in Tight Range Despite Oil Price Tumble

The Canadian dollar traded in a tight range versus the USD as the weak fundamentals in the U.S. cancelled out the drop in oil prices after doubts rose about the Doha crude price freeze.

The USD did not get support from data releases after the U.S. Factory goods orders posted a loss of 1.7 percent. The Labor Market Conditions index posted a -2.1, with a silver lining as it improved slightly over last month’s -2.7. The U.S. dollar has not gained traction ever since the March Federal Open Market Committee (FOMC) meeting. The dovish statement and press conference by the American central bank has made market participants reduce the possibility of the previously forecasted 4 rate hikes down to 2 in 2016. Given that this is an election year, the most likely scenario is 1 rate hike with FOMC meeting candidates split between June and December.

The USD/CAD gained 0.50 percent in the last 24 hours. The tumble in oil prices after Saudi Arabia’s comments during the weekend hinted at no deal to be reached in Doha, if Iran is does not agree to the freeze. Iran has already denied they will participate as their production is just ramping up after ending more than a decade of sanctions. Iranian production is anticipated to almost double just to return to pre-sanction levels, at which point it could decide to freeze production.

The tension between Saudi Arabia and Iran for diplomatic reasons has been a constant threat to the Organization of the Petroleum Exporting Countries (OPEC) and Russia oil output freeze. The back and forth discussions have managed to stabilize the price of crude, but the mercurial tempers of all possible members of the summit make it for a volatile agreement.

Employment remains the strongest and more resilient pillar of the U.S. economic recovery. Last week the U.S. non farm payrolls (NFP) rose by 215,000 jobs in the last month. The unemployment rate rose slightly to 5.0 from 4.9 percent but due to a larger participation rate that sends a positive growth signal. Previous NFP reports had failed to inspire a USD rally despite their headline jobs number exceeding expectations because the wage growth indicators decreased. ON Friday’s report wages rose 0.3 percent in March to tick a box of an overall positive employment report. The Fed’s dovish forecast was not blown away by a positive, but not strong enough NFP report.

The release of the March FOMC minutes could put further downward pressure on the USD when they are published on Wednesday, April 6 at 2:00 pm EDT. Comments from Federal Reserve Bank of Kansas City President Esther L. George will be actively searched as she was the only dissenter on the vote to hold interest rates unchanged. Fed facts and official statements have stressed the caution with which the central bank will approach the decision to raise rates in the futures. That patient stance has made the market punish the USD versus other pairs as it is unlikely there will be more than 2 rate hikes in 2016, when at the end of 2015 the expectation backed by Fed forecasts was double that.

Canadian data is expected to boost the CAD with the Trade balance due on Tuesday, April 5 forecasted to show a healthy growth in exports pushing the final trade data into a surplus. Canadian PMI data, housing and employment data will have the loonie reacting during the week as the Fed minutes and comments from Chair Yellen and rate hold dissenter Federal Reserve Bank of Kansas City President Esther George.

USD/CAD events to watch this week:

Tuesday, April 5
8:30 am CAD Trade Balance
10:00am USD ISM Non-Manufacturing PMI
Wednesday, April 6
10:30am USD Crude Oil Inventories
2:00pm USD FOMC Meeting Minutes
Thursday, April 7
8:30am USD Unemployment Claims
5:30pm USD Fed Chair Yellen Speaks
Friday, April 8
8:30am CAD Employment Change
8:30am CAD Unemployment Rate

*All times EDT