The Canadian dollar appreciated on Thursday as U.S. retail sales disappointed with contractions in both the headline number and the sans auto sales indicator. Core sales came in at -0.1 percent lower than the forecasted 0.3 percent. Retail sales were deeper in negative with -0.3 percent on a -0.1 percent estimate. The American producer price index (PPI) was flat in August after a slight recovery had been forecasted. The slump in crude prices and the stronger dollar have kept price inflation for producers in check. Oil is expected to continue range bound ahead of the Organization of the Petroleum Exporting Countries (OPEC) meeting in Algiers at the end of September, but the U.S. dollar will be under pressure after a series of underperforming indicators ahead of the September Federal Open Market Committee (FOMC) next week.
Canadian household debt reached record high in the second quarter of 2016. Consumer appetite for loans exceeded income. Debt is now 167.6 percent of disposable income in Canada. The Bank of Canada (BoC) has not been able to reduce the appeal of house ownership and a weak currency has boosted an influx of foreign buyers as Canadian properties become more attractive. New rules introduced in Vancouver appear to be working, although the market was seen cooling down ahead of the government’s initiative and if the loonie continues to weaken Canadian property will be sought out by foreign investors.
Soft U.S. economic releases have increased market doubts on a September rate hike announcement next week by the Fed. Tomorrow’s inflation data out the U.S. will be the main highlight followed by the preliminary consumer sentiment put together by the University of Michigan. Canadian manufacturing sales are expected to show a slowdown after the 0.8% rise last month.
The USD/CAD lost 0.313 percent in the last 24 hours. The pair is trading at 1.3153 after touching highs of 1.3236 earlier in the session. The CAD has been able to stay below 1.32 despite the price of oil being relatively flat after gasoline inventories met the forecast. The USD has risen against majors despite the weak economic indicators as it becomes apparent that no central bank will make a major move in September.
The Bank of Canada (BoC) is not estimated to make any changes to monetary policy for the remainder of the year. All major central banks are on a wait-and-see mode with all eyes on the Fed. The willingness to wait by the American central bank is putting more pressure to act on central banks like the Bank of England (BoE), the European Central Bank (ECB) and in particular the Bank of Japan (BOJ) who will also feature next week. The BoJ is heavily anticipated, mostly by their leaks to Japanese media, to deliver some guidance on their monetary policy plans.
The CME’s FedWatch tool is pointing to a 12 percent probability of a rate hike in September, down from 15 percent yesterday. While investors have moved on from their Fed future positions expecting a move next week, the FOMC meeting in December is close to 50/50. Economists surveyed by Reuters are forecasting a 70 percent chance of a rise in U.S. benchmark interest rate. The most likely scenario will be a token 25 basis points at the end of the year as comments form Fed members has been divided. Hawks and doves alike are sticking to the “data dependency” line and so far the data has favoured the doves with mixed indicators apart from the outlier jobs component that continues to be a pillar that is now close to full employment.
The price of West Texas is higher by 0.27 percent in the last 24 hours. USD weakness and no surprises in gasoline inventories have kept the price of energy stable at $43.90. Commodity prices have had a volatile week with a 10 percent range as OPEC uncertainty and lower forecasts in demand while production hits record highs still have crude down 6.8 percent this week. The talk of a potential oil output freeze deal and production disruptions are the two major factors keeping oil prices in current levels. The strategy of major producers to engage in a price war to retain market share has resulted in plunging prices as demand has shrunk as evidenced by high gasoline inventories during the U.S. driving season.
Market events to watch this week:
Friday, September 16
8:30am CAD Manufacturing Sales m/m
8:30am USD CPI m/m
8:30am USD Core CPI m/m
10:00am USD Prelim UoM Consumer Sentiment
*All times EDT
For a complete list of scheduled events in the forex market visit the MarketPulse Economic Calendar