The Canadian dollar fell 0.28 percent on Friday after the U.S. dollar regained its mojo on the back of the clarification of NY Fed President John Williams' comments on Thursday. The USD fell on Thursday after the NY Fed chief urged the central bank to be more proactive on monetary policy and implied it was better to act now than later.
The NY Fed clarified the comments and said they were “academic” in nature and not to be taken in the same context as current monetary policy decisions. The loonie had climbed after a deeper interest-rate cut was priced in based on Williams’ comments and now the retraction of sorts, put downward pressure on the Canadian currency.
Retail sales in Canada disappointed with a 0.3 percent miss for the core reading and 0.1 loss on the headline data point. Bad weather is blamed for the underperformance, but there was the bright side of the temporary nature of the negative factor.
The U.S. dollar rebounded on Friday after NY Fed Chief’s comments on proactive action on interest rates. A rate cut is still heavily anticipated on July 31, but the chance that it will be 50 basis points has gone down after the clarification from the monetary policy maker.
The USD finished the week mixed against major pairs. Safe-haven and commodity currencies (except the CAD) finished ahead of the U.S. currency. European major pairs and the loonie will remain under pressure agains the U.S. dollar.
OIL – Low Demand Concerns Put Crude Under Pressure
Oil prices traded in a tight range on Friday despite rising tensions between the U.S. and Iran. The U.S. claims to have shot down an Iranian drone and the news that Iran had seized a British tanker stoked fears of free passage in the Strait of Hormuz.
Prices moved during the day, but overall ended back at the same spot due to lower demand forecasts from the International Energy Agency. The Organization of the Petroleum Exporting Countries (OPEC) , the Energy Information Administration (EIA) and now the IEA have downgraded their demand forecasts, putting enormous downward pressure on crude prices.
Brent recorded a 6.29 percent loss and West Texas Intermediate fell 7.37 percent in the last five trading days. Supply disruptions had pushed prices higher and with the easing of U.S.-Iran concerns after a more diplomatic path was drawn out, and Gulf of Mexico operations getting back on-line after Storm Barry, crude traded lower.
Gold – Yellow Metal Ends Lower on Friday, but Ahead on a Weekly Basis
Gold fell 0.2 percent on Friday, but rising uncertainty once again proved the value of the metal as it rose close to 1 percent on weekly trading. As the July Federal Open Market Committee (FOMC) meeting approaches, the market is fully pricing in a rate cut. The question becomes how deep will the Fed slash interest rates. The dollar rebounded on Friday as NY Fed President John Williams’ quotes from Thursday were clarified by the central bank.
The market has grown accustomed to dovish rhetoric from the U.S. central bank after the Fed did a 180 on its monetary policy path and is now on the verge of its first rate cut of an easing cycle. The Fed hiked interest rates 4 times in 2018, but after a huge equity sell off and growth concerns (aided by a prolonged trade war with China), it has telegraphed to the market the need to add stimulus via lower rates.
The comments from Williams took markets by surprise as the central bank tried to temper expectations of a large rate cut, but the NY Fed chief came off as seeking a more aggressive response.
Gold remains bid as geopolitical risk events remain on the radar, but as the Fed walked back a deeper cut, the metal will remain sensitive to over-performing U.S. economic data.