The Canadian Dollar's Quiet Holiday Shifts Focus to Federal Reserve

Victoria Day

The Canadian dollar has edged lower in the Monday session. In North American trade, USD/CAD is trading at the 1.35 line. Canadian banks and stock markets are closed for the Victoria Day holiday. In the US, there are no economic releases. We’ll hear from four FOMC members, and the markets will be looking for clues as to the Fed’s plans with regard to future rate hikes. On Tuesday, Canada releases Wholesale Sales and the US will publish New Home Sales.

There are no economic numbers out of Canada or the US on Monday, so the markets will have a chance to focus on the Federal Reserve, with four FOMC members delivering speeches. The Fed has been keeping the markets guessing in recent weeks regarding a rate hike. The central bank is expected to announce a rate hike at its June 14 meeting, but the odds of a hike have shown strong volatility. In late April, a rate hike was priced in at just 50%. The odds jumped higher in May but continue to show movement. Currently, the markets have priced in a hike at 78%, up from 73% on Friday. If the likelihood of a June move continues to fluctuate, the US dollar could also show some movement, as a rate hike will make US-dollar assets more attractive to investors.

The Canadian dollar enjoyed strong gains last week, as the currency climbed 1.4%. Although Canadian consumer numbers were lukewarm last week, rising oil prices buoyed the Canadian dollar, as Brent crude soared 4.7% last week. However, investors are nervous about the ongoing political turmoil in Washington, and that could spell trouble for minor currencies like the Canadian dollar. President Trump must have been happy to head to the Middle East and Europe, as last week was perhaps his most difficult since taking office. Trump’s administration was rocked by reports that he had asked former FBI director James Comey to end an investigation into connections between Russia and the Trump campaign team during the US election. If these claims are true, Trump could be charged with committing obstruction of justice. President Trump fired back last week, angrily denouncing this move as a “witch hunt”. With Washington preoccupied with Trump’s alleged connections with Russia, Trump’s administration could find itself immersed with damage control, rather than moving ahead with its agenda of tax reform and increased fiscal spending.