For the loonie, last week started out on a positive note, with Retail Sales data excluding automobiles coming in well ahead of the consensus among analysts polled, with an increase of 0.7% in June. The top-performing provinces were British Colombia and Alberta, which saw growth of 12.4% and 10.5%, respectively. Our economists have stressed that the wealth effect brought on by rising real estate prices could be responsible for half of growth in consumption in Canada. This performance should support Canadian GDP growth, which could reach 4% for the second quarter of 2017.
Meanwhile, the greenback was more influenced by politics than by economic data. The U.S. dollar came under pressure on Wednesday, further to a comment by U.S. President Donald Trump that he intended to shut down the government in the event that Congress did not increase the federal debt ceiling. The U.S. oil refining sector was also impacted by Hurricane Harvey, which strengthened throughout the week to reach Category 3 and hit the part of Texas where many refineries are located. We have seen a marked increase in gas prices at the pump south of the border.
From a technical standpoint, what drew our attention last week was the resilience of the Canadian dollar in the face of a number of factors. First, the 0.5% decline in June Wholesale Sales did not affect the loonie, even though five of the seven sub-sectors of the Canadian economy saw drops. Moreover, the loonie’s strength was even more surprising after a downturn of close to 2% in crude oil prices over the week. Lastly, even negative comments from Trump regarding the North American Free Trade Agreement did not appear to affect our currency.
The key moment of the week came with the Jackson Hole Economic Policy Symposium, which featured speeches by U.S. Federal Reserve (Fed) Chair Janet Yellen and European Central Bank (ECB) President Mario Draghi. Yellen was unable to give more details on changes to monetary policy, opting to primarily discuss regulating financial institutions, resulting in disappointment on currency markets. In Yellen’s opinion, any adjustment to the regulatory framework should be modest and there could be benefits to reviewing the Volcker rule, which limits speculative transactions by banks on their own behalf. The U.S. Dollar Index, which measures the performance of the greenback against a basket of currencies, dropped 0.75% further to her speech. Draghi shared his relatively upbeat vision of the global economic outlook. Despite the lack of specific references to the ECB’s monetary policy, markets interpreted these comments as positive for the euro. The single currency is now trading at its highest level since January 2015 against the U.S. dollar.
This week, we’ll be keeping an eye on Canadian and U.S. GDP numbers, which will be released on Wednesday, and U.S. job data on Friday. Observers expect 178,000 new jobs created in August. These indicators will be closely watched by markets, as they are determining factors for changes in monetary policy in their respective countries.