The Canadian dollar is lower on the first day of trading this week even after oil prices jumped close to 4 percent as the Organization of Petroleum Exporting Countries (OPEC) and other major producers started their meeting in Algiers. The USD is weaker against majors with the exception being the CAD. Dismal data on Friday put the loonie against the ropes as inflation and retail sales failed to pick up in Canada.
The CAD is getting no support from rising oil prices despite the country’s reliance on natural resources. Sharing a border with the United States makes the northern nation more exposed to political risk. The worst possible scenario from the markets perspective is a close election. Uncertainty is at its highest as the market will trade in higher volatility until voters have decided. Hilary Clinton and Donald Trump will be face to face and political and market experts don’t know what to expect. Famed presidential election forecaster Nate Silver is saying the race is too close to call. His data shows a small lead for Clinton (51.5) versus Trump (48.5) but it could all change by tonight.
The USD/CAD lost 0.282 percent in the last 24 hours. The pair is trading at 1.3230 ahead of the first presidential candidate debate of the 2016 election cycle. The loonie sunk on Friday after inflation and retail sales data out of Canada. The data is part of the latest sign of economic malaise that has taken root after the fall in energy prices. The Bank of Canada (BoC) preemptively cut interest rate twice last year foreseeing a further drop in crude, but so far has kept on the sidelines in 2016. Part of that is the limited runway left in rates, at 0.50 percent the benchmark interest rate is the lowest on record and although negative rates have been discussed they haven’t proved to have the desired effects.
Canadian consumer indicators disappointed on Friday. Core Retail Sales was the biggest disappointment, as the market forecast of +0.5% was dashed by a weak reading of –0.1%. Core CPI remained stagnant at 0.0% for a third straight month, underscoring persistent low inflation levels. The Canadian dollar responded with sharp losses, sliding 120 points against the greenback. The BoC has stated its concerns about weak inflation, and these soft releases will add pressure on the bank to consider reducing interest rates at its October policy meeting.
The Canadian central bank along with other international institutions like the International Monetary Fund (IMF) and the Organization for Economic Co-operation and Development have warned about the risky levels of household debt. Low interest rates are amplifying a housing bubble and yet the central bank could be left with no other options but to cut rates further. There is a strong possibility that the fiscal stimulus package announced in March was not enough to boost growth as the data appears to be showing. This could trigger another rate cut before the end of the year if the U.S. Federal Reserve does not raise rates, or early next year if the Canadian economy fails to show signs of recovery.
West Texas Oil Sep 26 2016
The price of West Texas surged 3.376 percent at the start of the informal meeting of Organization of the Petroleum Exporting Countries (OPEC) members in Algiers. Crude is trading at $45.56 after comments that nothing is really off the table in terms of discussion. That means that while the market is expecting some comments on a coordinate oil production output freeze, production cuts are not out of the question, at least in theory.
There is minor anticipation of an actual agreement at this meeting in Algiers with the most likely outcome a motion to move towards a November meeting in Vienna. OPEC and non-OPEC members have so far managed to keep the price of crude stable in 2016 with the promise of this deal despite serious setbacks. Global crude demand has been weak and if not for supply disruptions like military unrest or natural disasters the record pace of producers would have pushed prices lower. Market events to watch this week:
Monday September 26 OPEC meeting in Algiers 4:00am EUR German Ifo Business Climate 5:30am CHF SNB Chairman Jordan Speaks 10:00am EUR ECB President Draghi Speaks 7:10pm CAD BOC Gov Poloz Speaks
Tuesday September 27 OPEC meeting in Algiers 10:00am USD CB Consumer Confidence Wednesday, September 28 8:30am USD Core Durable Goods Orders m/m 10:30am USD Crude Oil Inventories
Thursday September 29 OPEC meeting in Algiers 2:35am JPY BOJ Gov Kuroda Speaks
8:30am USD Final GDP q/q
8:30am USD Unemployment Claims 4:00pm USD Fed Chair Yellen Speaks 9:45pm CNY Caixin Manufacturing PMI
Friday September 30 4:30am GBP Current Account 8:30am CAD GDP m/m 9:00pm CNY Manufacturing PMI