Dollar Mixed as Stock Market Drops Ahead of Bush Memorial

Alfonso Esparza MarketPulse

The US dollar is mixed on Tuesday ahead of a national day of mourning in honor of former President George Bush. The US federal government will close with no trading in the equity and fixed income market. Several economic indicator releases scheduled for Wednesday will be pushed to Thursday or later. The JPY rose 0.76 percent as the trade ceasefire agreed by China and the United States is starting to unravel. The Canadian dollar is the major currency that is lower against the greenback after depreciating 0.48 percent. The Bank of Canada (BoC) will publish its December monetary policy statement on Wednesday, December 5 at 10:00 am EST. The central bank is not expected to modify its benchmark interest rate, with markets pricing in a more likely rate move in January. The US stock benchmark fell 800 points on Tuesday and a flattening of the US government debt yield curve created anxiety amongst investors.

ECB President to speak in Frankfurt
Bank of Canada (BoC) to hold rate at 1.75%
ADP report, US ISM non manufacturing PMIs and EIA crude oil inventories pushed to Thursday

BoC to Hold due to Lower Oil Prices and Economy Losing Momentum

The Canadian dollar fell 0.35 percent on Tuesday. The USD/CAD is trading at 1.3243 ahead of the Bank of Canada (BoC) publishing its rate statement on Wednesday. The central bank is expected to stand pat at 1.75 percent as energy market volatility, global trade uncertainty and rising concerns with the pace of Canadian growth will keep Governor Poloz from pulling the trigger on a rate lift.

The market is pricing in a January rate hike, but as headwinds grow stronger unless there is a strong pick up in internal as well as external indicators there might not be enough runway for that to happen. Oil prices remain caught between fears of oversupply and a potential sequel to the production cut agreement between the OPEC and other major producers.

Energy Prices Await OPEC Cut Agreement

West Texas Intermediate fell 0.7 percent on Tuesday. WTI is trading at $52.77 ahead of the meeting of the Organization of the Petroleum Exporting Countries (OPEC) in Vienna. The group is highly anticipated to once again strike a deal to limit production in an effort to stabilize prices. Russia has been on the fence after participating in the first agreement. During the G20 leaders from Russia and Saudi Arabia met and Vladimir Putin made an announcement on Saturday agreeing to a cut. The actual details of how much the curb of supply would be remains up for debate and until those numbers are known crude will be under pressure.

The Energy Information Administration (EIA) will delay its weekly crude inventories data due to the Bush national mourning day. This week the report will be published on Thursday at 11:00 am EST. Making Thursday a very busy day for energy traders as the OPEC meeting and weekly US crude stocks will happen on the same day, alongside other major economic indicators that were delayed.

Gold Rises as Trade Uncertainty Makes a Comeback

Gold rose 0.35 percent on Tuesday. The yellow metal is trading at $1,238 after the truce announced by China and the United States during the G20 meeting appear to be short lived. Both camps went on the offensive and hinted that things could get ugly if a deal is not reached. The yellow metal was a refuge for investors as the dollar was sold off in search for a safe haven.

Gold remains under pressure from more potential interest rate hikes form the U.S. Federal Reserve, but investors are starting to question how many rate hikes are really left before the Fed reaches a neutral rate. The market is pricing in an almost 90 percent probability of a rate lift in the December 19 meeting, but the outlook beyond is getting cloudy, with investors questioning the dot plot expecting 4 more rate hikes next year.

Market events to watch this week:

Wednesday, December 5
4:30am GBP Services PMI
8:15am USD ADP Non-Farm Employment Change
10:00am CAD BOC Rate Statement
7:30pm AUD Retail Sales m/m
Thursday, December 6
All Day All OPEC Meetings
8:30am CAD Trade Balance
10:00am USD ISM Non-Manufacturing PMI
11:00am WTI EIA Weekly Oil Inventories
Friday, December 7
8:30am CAD Employment Change
8:30am USD Average Hourly Earnings m/m
8:30am USD Non-Farm Employment Change

*All times EDT

Author

Alfonso Esparza

MarketPulse

Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs.

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