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Fed’s George Calls for Rate Hikes; US Data Beats Forecasts

Published August 25, 2016
  • As markets wait with bated breath for Fed Chair Janet Yellen's speech from Jackson Hole on Friday, another regional Fed President has called for rate hikes this morning
  • Kansas City Fed President, Esther George, called for gradual rate hikes given the progress on employment and inflation
  • George is a noted hawk and was the only one to vote against holding rates at the July meeting so this may not come as a surprise that she has added her support to hawkish comments from Vice Chair Fischer and Regional Presidents Williams and Dudley in recent weeks 
  • The question now is: will Yellen agree with them? Or will she act as a dovish foil in order to balance the public message from the Fed?
  • If the latter, expect some USD selling to ensue; however, if she does advocate a similarly hawkish tone, or perhaps a less neutral tone, then we could see a period of renewed USD strength 
  • This morning's data was positive for the USD as jobless claims and durable goods orders both beat expectations
  • Durable goods orders rose by 4.4% in July, handily beating calls for a 3.3% rebound following a 4.2% plunge in June
  • Jobless claims have declined for the 4th straight week in a sign that US labour markets remain robust 
  • USDCAD is flat to yesterday's close in the mid 1.2900's and we do not expect any significant movement until Yellen's speech on Friday 
  • Second chart below shows that the Loonie (CADUSD) is flat during Aug despite a -7% drop in Copper prices during the month…
  • …the two usually have a strong positive correlation and Copper is a well known global economic bellwether and therefore the question needs to be asked: is Copper the canary in the coal mine for the Loonie?

Charts: (1) USDCAD back to range trading as uptrend broken – need to get above 1.2930 short term and 1.3000 medium term for bulls to take over.  (2) Loonie flat in August despite a -7% drop in Copper.  (3) Economic Calendar is dominated by the US this week.