USD/CAD Canadian Dollar Rises After Fed Signals Upcoming Rate Cut

The Canadian dollar rose 0.67 percent on Wednesday after the US central bank is ready to go back to monetary policy easing with an upcoming interest rate cut. Trade optimism after Trump tweeted about his phone call with Chinese president Xi and lower rates in the US that could come as early as the July FOMC meeting put the greenback on the back foot.

The loonie appreciated versus the US dollar in the morning after Canadian inflation rose to 2.4 percent in May. The Bank of Canada (BoC) is unlikely to follow the Fed down the easing path in the near term. The interest rate gap will be closer once the Fed decides the economy needs stimulus to avoid losing momentum.

The dollar is lower across the board against major pairs after the Fed delivered a dovish statement at the end of the June FOMC meeting. There was no interest rate cut, but the removal of the word patient from the language appears to be the first step towards a return to monetary policy easing.

OIL – Crude Rises on Inventory Drop and Dovish Fed

Crude prices rose on Wednesday after the Energy Information Administration (EIA) published the weekly US crude inventories report. Crude and gasoline inventories registered bigger drawdowns than expected and drove prices higher. US crude stocks fell by 3.1 million barrels and gasoline by 1.7 million barrels.

West Texas Intermediate graph
Oil prices had surged on Tuesday after US President Donald Trump tweeted encouraging developments with China. A sit down with Chinese President Xi as part of the G20 meeting in Japan at the end of the month appears to be in the works. The Chinese official media confirmed that the two leaders are talking with a possible talk during the G20. The trade war between the two largest economies has been a negative factor for energy prices. The Fed meeting this week got an even bigger spotlight after European Central Bank (ECB) President Mario Draghi said he is ready to cut rates if necessary. The US central bank did not cut interest rates but it did signal it’s ready to stimulate the economy and avoid falling into a recession.

Brent crude graph
The anxiety around supply disruptions has died down as trade optimism is surging. Middle East conflict is sure to influence crude prices, with a frenetic end to the month of June as the G20 meeting and more details to emerge on the possibility of an extension to the OPEC+ supply cut agreement.

West Texas Intermediate rose 0.44 percent after the drop in inventories, with Brent rising 0.29 percent after the mixed signals sent by the Fed. The dollar could weaken further if economic indicators deteriorate in the short term building the case for a rate cut in July.

The OPEC+ has announced it will hold its ministerial meetings on July 1 and 2. The group’s production cut agreement has been he major stabilizing force for energy prices. The major factor to the downside has been the prolonged trade war between the US and China, but the G20 meeting at the end of June guarantees that crude traders will have lots of insights starting June 28.

GOLD – Yellow Metal Rises as Dollar Weakens after Dovish Fed

Gold is higher on Wednesday after the Fed held rates, but did turn up the dovish rhetoric in their monetary policy statement and press conference by Fed Chair Jerome Powell. The US central bank led major central banks in a move towards normalizing rates in 2018, but a slowdown in the economy could warrant a 180 degree turn and a return to lower rates. Powell used the Ben Franklin quote:”an ounce of prevention is worth a pound of cure” when asked about rate cuts, so overall the market is rating the Fed as mostly dovish.

Fed members remains divided on the next step, while the rate cut contingent has growth, there remains a sizeable group that finds the current conditions acceptable. Economic indicators will validate the two sides in the near term. The market will now be more sensitive to upcoming releases. Trade headwinds have already started to impact the US economy, but some of that pressure could be short lived if Trump and Xi had a successful meeting in Japan at the end to the month.

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Source : MarketPlus


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