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Fed Minutes Reveal Dovish Bent

Published August 18, 2016
  • Yesterday's minutes from the Federal Reserve's July meeting revealed an overall dovish and patient bias among voting members
  • One common theme is the board's reluctance to raise rates too soon; it would be fair to conclude that the Fed sees less risks in waiting longer to raise rates
  • This is likely due to their concerns over inflation, as the Fed's favoured metric, core PCE, has hovered around 1.7%, below their official 2% target
  • Despite y/y core CPI readings coming in at 2.2% for July, the Fed will want to see greater acceleration across prices before pulling the trigger on another rate hike
  • One key note is that these minutes were recorded days before July's strong payrolls gains of 255k which built on June's 292K gain and thus one may conclude that the committee's confidence in the labour market is likely stronger now than it would have been during July's meeting
  • Reaction to the minutes has been rather muted with minor gains across risk assets and a bit of weakness in the USD
  • Oil is trading above the 47 handle this morning as the recent rally extends – 20% in a mere eleven days
  • USDCAD found support once again at the 1.2800 handle, a seven-week low for the USD against the Loonie
  • Economic data for the US today was rather encouraging as jobless claims for last week fell to 262k from 266k the week prior and the Philly Fed Business Index rose to 2.0 thus far in August from -2.9 in July
  • Canada releases CPI data and retail sales figures for July on Friday so USDCAD traders will want to prepare accordingly for what could be a volatile end of the week with opportunities on both sides of the market to be had

Charts: (1) USDCAD back to range trading as uptrend broken – 1.2760 could be further supported after yesterday's 7-week low right at 1.2800.  Move above 1.3000 needed to get USD bulls excited again.  (2) Table of Fed Members Hawkish/Dovish Bias.  (3) Economic Calendar.