USD/CAD Canadian Dollar Higher After Chinese Data Hurts USD Rally

The Canadian dollar is higher versus he USD ahead of U.S. retail data to be released on Friday. Risk appetite was subdued after news out of China have put in evidence the slowdown of global demand. Chinese exports contracted 10 percent year over year and imports shrank 2 percent despite lower commodity prices.

Oil benefited from the USD weakness and rose after refined product inventory drawdowns offset the buildup in crude stocks. Crude inventories showed the first buildup in six weeks with a 4.9 million barrel gain. A larger than expected drawdown in distillates (3.7 million barrels) kept the price of energy stable. The effort of the Organization of the Petroleum Exporting Countries (OPEC) to reach an agreement on lower production continues as talks with other non-OPEC producers are ongoing.

New Canadian house prices rose 0.2 percent in August. Real estate prices have been under scrutiny as lower interest rates have fuelled a rise in household debt that could prove unsustainable. The Federal government has enforced changes to curb prices by enforcing tougher stress tests on mortgages and change the way properties are taxed to avoid giving incentives to non-residents. It is too early to tell if any of the changes will have the intended impact, but for the time being Finance Minister Bill Morneau has said they will take time to play out and that the government is not currently planning any other measures aimed at cooling the housing market.

The Canada-EU Trade deal has passed another test after the German court rejected a bid to block the agreement. European ministers will meet next week to discuss the deal, with concerns about Belgium opposition that could derail it for fear of farm imports displacing local production.

The USD/CAD lost 0.371 in the last 24 hours. The recovery in energy prices gave a leg up to the loonie against the U.S. dollar. The pair is trading at 1.3199 after touching a session high of 1.3307. The disappointing Chinese trade data has triggered a wave of risk aversion with the USD the biggest loser as major pairs have all gained against the greenback.

After touching a 7 month high on Wednesday following the release of the September FOMC minutes the USD rally lost all momentum after the Chinese trade data hit the wires. The loonie rose boosted by commodity prices and a soft greenback. Friday will bring important U.S. data releases specially as they will throw information on the state of the U.S. consumer. Retail sales and the Consumer sentiment survey will be released as well as the producer price index (PPI) which given the Fed’ focus on inflation will impact USD expectations.

December rate hike probabilities have come down slightly from yesterday given the rising macro headwinds this week. Near 70 percent probability has now become 65 percent. Lower American consumer data could further pressure investor’ confidence on an interest rate hike in the last FOMC meeting of the year.

Market events to watch this week:

Friday, October 14
8:30am USD Core Retail Sales m/m
8:30am USD PPI m/m
8:30am USD Retail Sales 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

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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza