The Canadian dollar got an early boost in the North American trade session with the release of Canadian wholesale trade data. Sales advanced at the fastest rate with a 1.8 percent gain blowing past forecasts of a 0.2 percent increase. The USD/CAD touched daily lows of 1.3023 before market concerns about a supply glut in oil drove the price of energy lower dragging the Canadian currency down for the ride.
The Conference Board of Canada cut growth of economy to 1.4 percent from 1.6 percent in 2016. The think-tank is focusing on well known factors to CAD traders: the Alberta wildfires and lower energy prices. Not as optimistic as the Bank of Canada (BoC) about a third quarter rebound the Conference Board downgrade is inline with yesterday’s International Monetary Fund (IMF) downgrade to 1.4 percent GDP growth this year. Ironically the most optimistic about a rebound the central bank has a 1.3 percent growth forecast for 2016.
The price of crude went down despite a larger than expected drawdown yesterday. The Energy Information Administration (EIA) reported U.S. crude inventories dropped by 2.3 million barrels in the past week higher than the 2.1 million barrels that was anticipated. The news drove energy slightly higher, but the fact remains that overall crude inventories are showing a record high supplies. U.S. inventories are at a record high for the season at 519 million barrels. Only Nigeria production is impaired but otherwise oil producers continue to output near record high levels as demand, as evidenced by the U.S. inventories is not growing despite the summer driving season.
The USD/CAD gained 0.331 percent in the last 24 hours. The pair is trading at 1.3097 after the high correlation between energy prices and the Canadian currency made itself felt. Oversupply concerns are putting a downward pressure on crude and dragging the loonie lower against the USD. Economic indicators have been mixed and despite the impressive wholesale trade surprise the downgrades to Canadian growth are becoming more commonplace.
West Texas oil lost 2.037 percent in the last 24 hours. The price of energy is trading at $43.96 after there is little evidence of growing demand and ample global examples of a glut. The Russian Energy Minister comments on the lack of coordination with the Organization of the Petroleum Exporting Countries (OPEC) on a potential oil output freeze after the failure of the Doha summit to reach an agreement on production.
The week will end with a plethora of Canadian data for traders to digest. Retail sales and inflation data is expected to come in lower than in the past month as the economy has slowed down due to lower commodity prices as well as overall uncertainty in global markets. The second quarter is looking less like an outlier and more like a shape of things to come, which will impact the Canadian dollar as it depreciates against majors if economic weakness continues.
Canadian dollar events to watch this week:
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
*All times EDT
For a complete list of scheduled events in the forex market visit the MarketPulse Economic Calendar