After the release of price indices for the US on Tuesday, and the minutes of the July meeting of the Federal Open Market Committee (FOMC) on Wednesday, dollar dropped massively on the foreign exchange market. The consumer price index (CPI) published on Tuesday remained unchanged in the US in July, showing that inflation remains moderate. Minutes of the FOMC showed that there is no consensus between the leaders of the Fed about monetary tightening in the US in the coming months.
On the other hand, the oil market provides encouraging information about the possibility of a successful outcome of the forthcoming OPEC meeting in September. According to press reports, agenda of the meeting may again include the issue of, if not reducing oil production, then, at least, freezing production at current levels.
The Canadian dollar, remaining a commodity currency, is responsive to the dynamics of the oil market. Canada is a net exporter of oil. Oil is an important source of export revenue in Canada, and oil prices have a strong correlation with the Canadian dollar quotations.
Since the beginning of August the price of oil has increased by 22% within an almost reboundless three-week trend. A similar trend was observed in USD/CAD pair, which was declining almost all of August, except for Friday, August 5, when strong data on the US labor market came out and the US dollar strengthened on the day almost all over the currency market.
In July, the Bank of Canada kept interest rates at 0.5%, noting that economic growth in Canada is not uniform from quarter to quarter. The bank lowered the forecast for GDP growth in real terms to 1.3% from 1.7% in 2016 and to 2.2% from 2.3% in 2017.
Today, the US dollar is recovering positions on the foreign exchange market, including in USD/CAD pair. Yesterday's statements by the president of the San Francisco Federal Reserve Bank John Williams that the central bank should start raising interest rates "sooner rather than later", supported the dollar. It is likely that financial market participants can underestimate the Fed's determination as to the issue of the rate increase. Sellers of the dollar may be caught off guard.
Today's new that are worth paying attention are the data for Canada expected at 15:30 (GMT +3). The most important inflation indicators (retail sales for June, consumer price index for July) will be published. High values of indicators will strengthen the Canadian currency and vice versa.