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Loonie, Oil Fall Ahead of Key Speech by BoC Governor Poloz

Published September 20, 2016
  • Tight ranges have proven to be the order of the day ahead of the Fed's interest rate decision on Wednesday at 2pm ET
  • While there is only a 14% chance of a rate hike at the meeting there does exist a growing contingent within the Fed that is concerned about the potentially harmful effects ultra low policy rates may be having on the economy
  • A surprise hike seems unlikely and thus, to satisfy the Fed's growing optimism on growth and inflation, they may deliver a rather hawkish tone within the statement itself or at the press conference that follows with Janet Yellen
  • Oil is 1% lower on the day with WTI trading into the $42/barrel level as tensions seem to be rising within OPEC ahead of their producers meeting September 27th in Algiers
  • Venezuela's oil minister stated yesterday that global supply will have to fall by 10% in order to get in line with current demand
  • Whether OPEC members can cooperate in order to address those imbalances remains to be seen, however, basic game theory would suggest that the Saudis would be loathe to do anything to help the Iranians and thus both are following an optimal strategy at present – pump as much as you can as fast as you can
  • The Loonie has followed oil lower as USDCAD trades above the 1.32 handle this morning just below key resistance circa 1.3255
  • Bank of Canada Governor Stephen Poloz delivers a speech at 1235ET entitled "Living with lower for longer" so we could see some volatility in USDCAD later today with a break above the 200 DMA and four-month high at 1.3255 likely causing a rather large reaction
  • US data was middling this morning as August Housing Starts missed expectations; there are no major Canadian data until Friday's CPI and Retail Sales 

Charts: (1) USDCAD formed a base at 1.2825 and now looks set for a test of range highs circa 1.3255.  (2) Economic Calendar.