Resource based economy is slowing down but not enough for central bank to act.
The Bank of Canada (BoC) will release its rate statement at 10:00 am EDT on Wednesday, September 7. The Canadian central bank is not anticipated to make any change to its benchmark interest rate. Economists and analysts are forecasting the BoC to stand pat for the remainder of 2017.
BoC Governor Stephen Poloz led two proactive interest rate cuts in 2015, but has shown patience in 2016 opting instead to wait for the effects of the government’s stimulus package to show results. Despite the growth slowdown for the Canadian economy in the second quarter, a rate cut at this stage would not be as beneficial as exports have not capitalized on a weaker currency.
Oil prices have surged this week on comments from oil producers about a potential oil freeze agreement being reached soon. While there hasn’t been a firm commitment from Organization of the Petroleum Exporting Countries (OPEC) and Russia for now they all agree to participate if there is a majority of producers involved.
The USD/CAD lost 0.729 percent in the last 24 hours. The currency pair is trading at 1.2837 as the loonie has benefited from a weak USD and a strong oil price. The USD has not started September with its best foot forward. First U.S. non farm payrolls (NFP) did not impress with a steady 151,000 job gains, but well below expectations of around 180,000. On Tuesday, the ISM Non-Manufacturing PMI came in at 51.4 missing estimates of 55.4. The lack of confidence from non manufacturing purchasers raises doubts about the solid pace of growth of the economy. The USD had gained on the comments from U.S. Federal Reserve Chair Janet Yellen that the case for a rate hike was strong, but always dependent on economic data.
The price of West Texas lost 0.633 percent in the last 24 hours. The WTI is trading at $44.57 after a volatile two day trading period. Comments from Saudi Arabia and Russia about an oil output freeze agreement sparked a comeback for the commodity. Iran and Iraq have made comments supporting “price stability” actions. The inclusion of Iran is a positive development as last time there was concrete talks around an output cap in the Doha summit it came down to Iran’s inability to comply that led to the unsuccessful agreement.
This week features three major central banks, but so far the Reserve Bank of Australia (RBA) held rates, the Bank of Canada (BoC) and the European Central Bank (ECB) are anticipated to keep monetary policy unchanged. Economic data has put a question mark on the U.S. Federal Reserve move in two weeks. The CME FedWatch tool dropped the probability of a rate hike in September from 21 to 18 percent after the disappointing non-manufacturing PMI. U.S. retail sales and inflation data next week could bring it down lower as the Fed could have mistimed the momentum of the economy, but as last year could err on the side of caution and raise rates at the final FOMC meeting in December.
Market events to watch this week:
Wednesday, September 7
4:30am GBP Manufacturing Production m/m
9:15am GBP Inflation Report Hearings
10:00am CAD BOC Rate Statement
9:30pm AUD Trade Balance
Thursday, September 8
7:45am EUR Minimum Bid Rate
8:30am EUR ECB Press Conference
8:30am USD Unemployment Claims
11:00am USD Crude Oil Inventories
Friday, September 9
8:30am CAD Employment Change
8:30am CAD Unemployment Rate