Oil prices are down for the first day in four days as the commodity’s recovery peters out after last week’s plunge. Oil is down as renewed virus restrictions are announced around the world, potentially impacting demand for the key Canadian export. The move in oil is putting slight pressure on the Canadian dollar (down 0.3% against USD). At the moment, USD to CAD is at 1.262 (CAD to USD at 0.792). The currency markets are generally calm as all eyes are on what signals the Federal Reserve might send at its annual Jackson Hole conference which starts today. Chairman Powell speaks virtually tomorrow at the conference. He is widely expected to signal the central bank will begin unwinding its monetary stimulus in the next few months but the exact timing and speed of that unwind is what will impact exchange rates. On the one hand, inflation has been more persistent than some expected and economic recovery well on its way. On the other hand, the virus keeps popping up in different ways around the world and presents an ongoing headwind to global and US economic recovery. How the Fed balances those issues will matter more to the Canadian dollar in the near term than anything else. Powell’s speech will come after we get US July inflation figures tomorrow morning so we could very well see elevated volatility in the exchange rate tomorrow. Regardless of timing and specifics, it is clear that central banks around the world are reigning in monetary stimulus. South Korea’s central bank on Thursday raised interest rates for the first time in three years. The Bank of Canada will have to update its position in the next few weeks as well.
