The Canadian dollar consolidated yesterday’s losses following a steep drop in commodity prices and mildly hawkish Federal Open Market Committee meeting minutes.
Traders ignored the sharply higher than expected Canadian inflation data released Wednesday. The Consumer Price Index rose 3.4% y/y in April, while Core CPI climbed 2.3% y/y, easily beating the forecast for 32.% and 1.3% increases, respectively.
When U.S. inflation numbers surged above expectations, the U.S. dollar rallied. That wasn’t the case for the Canadian dollar. The Canadian data mainly was ignored as Bank of Canada officials insist inflation gain are due to base effects and will be temporary.
USD/CAD climbed from a low of $1.2055 on Wednesday to $1.2143 overnight before retreating to $1.2110 in early New York trading
Wobbly equity markets, combined with rising U.S. crude inventories, pending new oil supply from Iran, and Chinese officials pushing back against commodity speculators sent commodity prices tumbling. The S&P Goldman Sachs Commodity Index fell 2.3% yesterday, and the drop took a toll on the commodity currency bloc, which includes the Canadian dollar.
The FOMC minutes exacerbated the Canadian dollar selloff when markets reacted to what they determined was a statement meaning the Fed planned to start tapering. They said, "A number of participants suggested that if the economy continued to make rapid progress toward the Committee’s goals, it might be appropriate at some point in upcoming meetings to begin discussing a plan for adjusting the pace of asset purchases."
That statement is the epitome of "wishy-washy." It is rife with “should, could, mights, maybes and ifs", which is hardly a call to action. There have been many comments and speeches from Fed policymakers since the April 28 meeting, and they appear to be united in their determination that monetary policy needs to remain unchanged.
EURUSD is rangebound in a $1.2150-$1.2250 band. Dovish comments from European Central Bank Chief Economist Philip Lane and the FOMC minutes weigh on prices, while bullish technicals limit the downside.
U.S. weekly jobless claims are expected to fall to 450,000 from 473,000 last week, which, if it happens, could provide more ammunition for US dollar bulls.
Bank of Canada Governor Tiff Macklem will be holding a press conference at 11:00 am ET to discuss the Financial System Review.
Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians
