The Canadian dollar was lower versus its American counterpart on Tuesday ahead of the American Petroleum Institute weekly report on crude inventories. Oil prices have been softer since inventories have not shown a considerable drawdown while output continues at near record levels.
The USD got a boost from housing data as building permits and housing starts were higher than last month. Building permits in the U.S. rose to 1.15 million and housing starts beast forecasts with a 1.19 million increase.
While low interest rates have kept the American housing sector stable, there were concerns that demand was slowing. There will be few impressive gains from the housing market going forward but for now the U.S. has posted strong economic indicators.
The correlation between the CAD and oil prices has made the currency a proxy for trading the energy market. The loonie is tied at the hip with crude prices, and despite efforts from the Bank of Canada (BoC) and the Canadian government, the dependancy on natural resources has proven hard to diversify and is dragging economic growth down.
The USD/CAD gained 0.559 percent in the last 24 hours. The pair is trading at 1.3036 after oil inventories are anticipated with lower drawdowns. Political disruptions in the United Kingdom and Turkey have impacted global risk appetite with the CAD caught between a flight to safety in the USD and lower oil prices.
The West Texas oil lost 0.777 percent in the last 24 hours. The price of oil is trading at $44.69 ahead of the weekly inventory reports from the API and the U.S. Energy Information Administration (EIA). The good news on the oil front is that there is a rise of Indian demand for Iraqi crude, with plans to add a strategic petroleum reserve to take advantage of cheap oil.
The bad news is that Indian demand is not making up the shortfall as demand weakens and supply keeps pumping at near record levels. With no output disruptions in the horizon, the laws of supply and demand have put downward pressure on the price of the black stuff.
Canadian data will be scarce this week, with the highlights coming on Friday, July 22 with the release of inflation and retail sales data. Globally, the European Central Bank (ECB) rate statement on Thursday, July 21 is heavily anticipated, although the market widely expects President Mario Draghi to keep policy unchanged, awaiting more data around the Brexit vote and the impact of its own quantitative easing program before digging deeper into the unconventional monetary policy toolbox.
CAD traders will be on alert as weekly oil inventory data starts hitting the wires. First with the API data on Tuesday afternoon and Wednesday with the release of the EIA U.S. crude inventories.
CAD events to watch this week:
Thursday, July 21
8:30am CAD Wholesale Sales m/m
Friday, July 22
8:30am CAD Core CPI m/m
8:30am CAD Core Retail Sales m/m
8:30am CAD CPI m/m
8:30am CAD Retail Sales m/m
Saturday, July 23
Day 1 ALL G20 Meetings