The Canadian dollar had a bumpy ride this week. With little economic data out of Canada this week and the Chinese week long holiday capping market activity the CAD was in reactive mode to the two major events of the week. U.S. Federal Reserve Chair Janet Yellen’s two testimonies, one to congress and the other to the senate on monetary policy were taken overall as dovish for the USD as they took the interest rate hike in March off the table as the Fed is more likely to wait for better domestic and global growth indicators before committing to a second rate hike. The market now expects the rate hike to be later in the year and in some scenarios maybe not for all of 2016 if the global slowdown continues.
Canadian Prime Minister Justin Trudeau was quoted as saying that the budget will not be balanced by the end of his term if current macro economic conditions continue to worsen. Next month’s budget, the first in this new Liberal government, is highly anticipated to include fiscal stimulus. How much is object of speculation as the Bank of Canada (BoC) is also awaiting the actual budget to analyze the changes to monetary policy it needs to implement if fiscal stimulus fails to reignite the economy. PM Trudeau stressed the negative impact that lower oil prices have had on the Canadian economy.
The Canadian dollar managed to eke out a small gain on the week of 0.34 percent versus the USD as the USD/CAD ended the week at 1.3852. The biggest gain for the Canadian dollar came on the back of the Organization of the Petroleum Exporting Countries (OPEC) comments of a possible production cut agreement. So far the market is going by the words of the United Arab Emirates Energy Minister. Neither Saudi Arabia or Iran have denied or confirmed this possibility. It would mark a bold move from OPEC to reach an agreement internally given the division between producers who desperately need higher oil prices to balance their budgets like Venezuela, and those like Saudi Arabia that can tighten their belt in return for market share against lower cost competitors.
The USD/CAD broke through the 1.40 price level this week but the OPEC comments took it as far as 1.3788. The better than expected U.S. retail sales gave the USD a small boost ahead of the long weekend in the U.S. and Canada.
Canadian traders will have manufacturing, security purchases, sales and inflation data to guide them next week. Manufacturing data will be one of the highlights given last month’s 1.0 percent growth that beat expectations. The weaker currency has helped Canadian goods gain a competitive edge abroad and it is expected that the trend will carry forward in next week’s manufacturing sales report. Inflation and sales could paint diverging paths of Canadian economics. Inflation is expected to rise slightly by 0.2 percent as import prices rose, while sales will continue to be weaker with core retail sales expected to shrink by 0.5 percent, while adding auto sales will drive them further down to 0.8 percent according to estimates.
CAD events to watch next week:
Tuesday, February 16
8:30am CAD Manufacturing Sales m/m
Wednesday, February 17
8:30am CAD Foreign Securities Purchases
Thursday, February 18
8:30am CAD Wholesale Sales m/m
Friday, February 19
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