The Canadian dollar was sidelined in overnight FX trading. It wasn’t the only currency to suffer that fate. Aside from a short-lived rally-then-retreat of the Antipodean currencies, the G-10 major currencies did not stray far from their New York closing levels.
The Federal Open Market Committee (FOMC) meeting results are released this afternoon at 2:00 pm EDT, followed by a press conference by Fed Chair Jerome Powell. There is potential for wild FX market price swings, depending upon how the statement, forecasts and Powell’s remarks are received.
The FOMC is expected to hike rates by 0.25% to the 2.00-2.25% range. The surprise would be if they didn’t. There is a lot of room for FX price disruption stemming from the tone of the statement and the summary of economic projections.
Economists and analysts believe the new dot-plot forecast will include four rate hikes for 2018, but there is a risk of a downward revision to the 2019 forecast. If so, those traders expecting a dovish result will be rewarded as the U.S. dollar would drop. Other analysts expect that the status quo will win the day, meaning the 2019 forecast will be unchanged.
Powell’s press conference is another potential market mover, depending upon how he address questions about the impact of tariffs on the economic outlook.
The Canadian dollar will track broad U.S. dollar moves, however, ongoing concerns over the North American Free Trade Agreement will limit gains.
Yesterday, U.S. Trade Representative Robert Lighthizer complained "The fact is, Canada is not making concessions in areas where we think they're essential," adding "we’re running out of time."
Time is of the essence as the U.S. needs 60 days to allow Congress to review the text of the deal before President Trump can sign it. The U.S. and Mexico are motivated to have their deal signed by November 30, as that is the last day Mexico President Enrique Nieto is in office.
Federal Foreign Minister Chrystia Freeland wouldn’t comment, perhaps because for many, she is part of the problem, not the solution. Her participation in anti-Trump rallies, as well as her prior negative remarks aimed at the Trump administration, have not endeared her to the American negotiating team.
Canada has faced NAFTA deadlines before without recriminations. This time may be different. Trump has vowed to levy 25% tariffs on Canadian car imports in the event there isn’t a NAFTA deal.
Prior to Lighthizer speaking, Prime Minister Trudeau told reporters "I think there's a possibility there to build on what they agreed," referring to Mexico and the U.S.
The only data of note this morning is U.S new home sales, which are expected to rise from 627,000 to 630,000.
Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians
