The Canadian dollar is close to erasing the losses of 2015 as it keeps appreciating versus the U.S. dollar. The loonie has been boosted by stronger oil prices and weaker American economic indicators. The Bank of Canada remains optimistic about the growth of the economy and so far the Canadian indicators have held to that view. This morning the Energy Information Administration in the U.S. reported lower inventories even though there is known supply glut of crude. The U.S, retail sales came in under forecasts again further creating a divide between the optimistic consumer confidence and the disappointing consumer spending. American consumers have opted to reduce their debt or save hurting retail sales and casting doubts about the health of the U.S. economy.
The USD dollar managed to trade as low as 1.1930 as the USD has not managed to break above expectations of late. This underperformance has cast serious doubts on the Federal Reserve announcing a June benchmark interest rate hike. The market has shifted the probabilities and is not looking at September as a more likely option, although a first rate hike in 2016 is not out of the question. The rate divergence that fueled the USD dollar rally is now hurting the currency as it is under pressure against all major pairs.
Tomorrow the U.S. will release its Producer Price Index (PPI) which is expected almost flat at 0.1%. The impact of a strong USD in exports is probably a sign that the PPI will be near if not lower than forecasted. There will be no major Canadian indicator on deck with manufacturing sales closing the week. The month over month sales data is expected to rise to 1.2% after last month’s negative number (-1.7%). The USD will close the week with the University of Michigan Consumer Sentiment which beat expectations last month, yet proved that confidence in the economy does not loosen the purse strings of U.S. consumers.
This week has been driven mostly by USD underperformance that have aided the CAD on recovering some ground ahead of next week where the highlight will be Bank of Canada Governor Stephen Poloz speech on Tuesday.