Canadian dollar rises, traders look to major Fed meeting for rate hike hints

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TORONTO – The Canadian dollar closed slightly higher Monday as geopolitical tensions eased and markets looked to the U.S. Federal Reserve and other economic data for hints as to the pace of interest rate hikes.

The loonie added 0.02 of a cent to 91.86 cents US.

Traders hoped for for hints about when the central bank might move next year to hike short-term interest rates from near zero. The Fed releases the minutes from its latest meeting on Wednesday. There could be a more hawkish tone in those minutes given the recent de-emphasis on disinflation in the news release from that meeting.

But traders in particular looked to Friday when Fed chair Janet Yellen delivers the keynote speech at the central bank’s annual meeting in Jackson Hole, Wyo.

“Historically, Jackson Hole has proven market moving, making it traders’ core focus this week,” said Camilla Sutton, chief FX strategist, managing director, Scotiabank global banking and markets.

Inflation will play a big part in when rates will start to head higher, so traders will also consider the latest reading on the U.S. consumer price index on Tuesday. Economists looked for inflation in July to come in at an annualized rate of two per cent.

In Canada, June retail sales figures and July consumer prices index data come out Friday.

Economists expect retail sales to rise 0.4 per cent over the previous month. The CPI is forecast to have dipped 0.1 per cent from the previous month, which would leave the annual inflation rate at 1.8 per cent.

Markets had ended last week in a nervous mood after Ukraine’s president said that his country’s forces had destroyed a Russian armoured force that had crossed the border. But there was no escalation during the weekend and traders perceived an easing in tensions in the conflict after foreign ministers from both countries held discussions over the weekend in Berlin.

Russia’s Sergey Lavrov said Monday that all questions regarding a humanitarian mission from his country had been answered and that an agreement had been reached with Ukraine and the International Red Cross. There have been worries that the convoy of about 300 vehicles could be used to spirit in weapons for the separatists, who are gradually losing ground to Ukrainian forces.

Prices were mainly lower on commodity markets where September crude dropped 94 cents to US$96.41 a barrel, September copper was up a penny at $3.11 a pound while lessening geopolitical tensions pushed December bullion down $6.90 to US$1,299.30 an ounce.

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