Dollar pairs are in anticipation of the main event of this week - the September meeting of the US Federal Reserve. In the market, there were fears that the Fed might take a tougher stance than most traders expect. Therefore, the dollar is now literally frozen in place, and the main dynamics in pairs is mainly due to quoted currencies. The euro-dollar pair reacted to good data on European inflation (the final estimate was in line with the preliminary figures of + 1.5%), while the pound-dollar is corrected ahead of Mark Carney's speech, and the yen falls amid the decline in demand for safe-haven trading instruments.
Several commodity currencies carried on apart from the rest. The fundamental picture on the oil market is rather unclear, although optimism is still prevailing on the original scale. This allows traders of the USD/CAD pair to restrain the onset of bulls, who are trying to organize a large-scale upward correction after the price falls to the middle of the 20th figure. However, these attempts are difficult to materialize- the price is now slowly testing the 22nd figure, staying in a narrow-range channel.
The main reason for the weakness of the bulls of the USD/CAD pair is explained by two reasons. First, at its last meeting, the Bank of Canada not only raised the rate, but also hinted at the possibility of further tightening of monetary policy. This probability intensified two days after the September meeting, when Canada published data on the labor market. Unemployment fell to a record low of 6.2%, and the number of employees jumped to 22, 000. In general, the dynamics of the Canadian labor market has a strong tendency to improve - unemployment has been continuously declining since May this year, and the growth rate of employees has never left the negative area since November 2016. These conditions, coupled with rising inflation and the country's GDP, gives boost to optimism. Especially - against the background of the restoration of the oil market.
However, as stated, in the oil market, the situation is not as clear as it seems at first glance. Let's start with the positives. States are gradually recovering from the devastating hurricanes, and this process is faster than expected - at least in the context of the restoration of many US refineries. Increased demand in the US (and also in Europe) reduces the surplus of raw materials in the world market - this fact was also confirmed in the International Energy Agency, whose analysts raised the forecast for the demand for oil in the current and next year.
In addition, oil traders reacted positively to the reduction of drilling rigs in the United States. After a two-week growth, the indicator began to show negative dynamics again. Good news for oil traders came from Saudi Arabia. First,the country's oil exports decreased (data for July were published), and secondly, the volume of production decreased. It is worth recalling that Saudi Arabia accounts for 10% of global oil production, so this news is of immediate importance for the market.
Why, given such conditions, did oil prices not rise exponentially? And along with them - commodity currencies? The situation is largely limited by the expectation of a referendum on independence, which on September 25 should be held in the Kurdish Autonomous Region of Iraq. The fact is that in the Kurdish-controlled territory of Iraq, there are 15-20% of the country's oil fields, which is very significant given the total amount of Iraqi oil produced.
Currently the oil produced in the autonomy is successfully sold through the Turkish ports, but holding a referendum is almost guaranteed to block this path. Turkey has long and consistently opposed the independence of Kurdistan, so the outcome to the referendum is almost certain. In addition, if the Kurds nevertheless announce their independence, how will OPEC react? Will the members of the cartel include a new state in their ranks (thus worsening their relations with Iraq) or will they actually accept the loss of control over 15-20% of Iraqi oil? Regarding this situation there are more questions than answers, so the whole positive of the oil market is offset by the uncertainty that has arisen.
To date, it is known that the Supreme Federal Court of Iraq decided a few hours ago to suspend the holding of a referendum, but representatives of the Kurdish autonomy said that they would still hold a referendum.
Against this background, the growth of commodity currencies, including the Canadian currency, looks unlikely.The USDCAD pair may decline only due to the weakness of the US dollar, but before the Fed meeting, the greenback will be "on the defensive" in the hope of a possible start of asset reduction on the Fed's balance sheet.