The Canadian dollar continued to sink yesterday and overnight due to the twin pressures of sliding oil prices and caution ahead of today’s U.S. Federal Open Market Committee (FOMC) meeting.
West Texas Intermediate dropped from $84.85/barrel on Monday to $81.81 in early New York trading as U.S. dollar strength, and comments from President Biden weighed on prices. Biden accused the Organization of the Petroleum Exporting Countries and Russia of driving inflation higher because the cartel refused to increase crude production. Some traders believe the President’s remarks may spur OPEC to announce a production increase for December at tomorrow’s meeting. WTI prices were also pushed lower after American Petroleum Institute data showed
U.S. crude inventories rising 3.6 million barrels in the week ending October 29.
The oil price action weighed on the Canadian dollar as did broad U.S. dollar strength ahead of today’s FOMC meeting.
The FOMC outcome is expected to boost the U.S. dollar as the Fed announces a policy shift beginning with a reduction in quantitative easing purchases. That move has been well-telegraphed and shouldn’t surprise markets. The surprise will come if the Fed is deemed to be more hawkish than expected.
The ADP employment report is forecast to show the U.S. added 400,000 jobs in October. Despite its abysmal record in predicting nonfarm payroll results, markets still react to significant deviations from the forecast.
EUR/USD bounced in a narrow $1.1576-$1.1597 band, and it is at the top of the range in early New York trading. Prices are under pressure due to broad U.S. dollar strength and lingering bearish sentiment from last week’s European Central Bank policy meeting. That sentiment was reinforced today after President Christine Lagarde said, "In our forward guidance on interest rates, we have clearly articulated the three conditions that need to be satisfied before rates will start to rise. Despite the current inflation surge, the outlook for inflation over the medium term remains subdued, and thus these three conditions are very unlikely to be satisfied next year."
GBP/USD climbed from $1.3609 to $1.3652 after European equity indexes flipped from modestly negative to modestly positive. However, the ongoing feud between the UK and the EU over Northern Ireland and between the UK and France about fishing rights will limit gains.
AUD/USD and NZD/USD traded quietly in narrow ranges. New Zealand employment data was better than expected, which supported NZD/USD.
U.S. Factory Orders and Institute for Supply Management Services Purchasing Managers Index data are on tap.
Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians
