The Canadian dollar is weakening versus the US dollar on Thursday. The loonie had a dream start to the week when the one-two punch of hawkish comments from Bank of Canada (BoC) Deputy Governor Carolyn Wilkins on Monday and a day later Governor Stephen Poloz repeated similar comments during a radio interview in Winnipeg. The positive assessment from both BoC officials on the state of the economy helped the currency appreciate against the USD but the CAD rally ended on Wednesday when the U.S. Federal Reserve hiked rates as expected and delivered its own hawkish rhetoric supercharging the greenback.
Oil prices offered no support to the Canadian dollar with prices once again dropping following a weekly inventory report in the US showing a buildup, this time of gasoline stocks. Last week there was a massive unexpected buildup of crude, and now although the report from the Energy Information Administration (EIA) showed crude inventories contracted they did it by less than expected. So with higher than expected drawdown in crude and a buildup in gasoline stocks oil has lost 2.5 percent in the last five days.
Economic data in Canada were scarce with manufacturing sales growing by more than anticipated with a 1.1 percent gain in April. Oil and coal sales lead the rebound with an 8.9 percent rise. Housing has been gaining priority as an economic indicator with Canadian house resales dropping in May by 6.2 percent. Toronto housing alone plunged 25.3 percent as there are less inventory while prices climbed 17.9 percent nationally. With the slowdown in the number of houses sold there is a forecast prices will stabilize after speculators are driven off the market. Low rates will continue to make that goal difficult to achieve, but this is where the words of the central bank officials with a promise to reduce stimulus could end up with higher rates sooner than later.
The USD/CAD gained 0.099 percent in the last 24 hours. The currency is trading at 1.3272 after the decision by the U.S. Federal Reserve to hike the US benchmark rate by 25 basis points to a 100–125 range. The press conference by Chair Yellen made it clear that the Fed is maintaining its 3 go 4 rate hikes a year and is not worried about slowing inflation, cataloguing it as a temporary issue.
The CAD had gained earlier in the week as the BoC officials had given a hawkish view on the economy and hinted at a possible rate hike sooner than originally expected. With two rate cuts in 2015 to minimize the impact of dropping oil prices the BoC had stood on the sidelines awaiting the effects of fiscal stimulus that was introduced in 2016. Canadian economic indicators have been mixed but still tell a positive trend with the biggest concern being the high levels of household debt. Poloz has openly addressed that hiking too much too soon could have terrible consequences for Canadian debtors, but the fact that they are considering a hike at all did boost the loonie earlier in the week.
Market events to watch this week:
Thursday, June 15
3:30 am CHF Libor Rate
3:30 am CHF SNB Monetary Policy Assessment
3:30 am CHF SNB Press Conference
4:30 am GBP Retail Sales m/m
7:00 am GBP MPC Official Bank Rate Votes
GBP Monetary Policy Summary
GBP Official Bank Rate
8:30 am USD Unemployment Claims
Tentative JPY Monetary Policy Statement
Friday, June 16
Tentative JPY BOJ Policy Rate
2:30 am JPY BOJ Press Conference
8:30 am CAD Core Retail Sales m/m
8:30 am USD Building Permits
