Loonie the first to hike?

Canada looks like a safe bet to be the first amongst the G8 members to hike rates. Last month’s inflation figures were a tad stronger than expected, topping Governor Carney’s +2% inflation target. Despite the small breach, no CBank in this stuttering economic environment would be rushing to raise rates. Canada’s outperforming metrics, employment, housing and manufacturing data still have to combat specific external headwinds that scream for extending domestic accommodative policies. The BoC has been very vocal about being adequately ‘flexible’ in its inflation target mandate. The timing of any hike will be ‘weighed carefully against domestic and global economic developments.’ Currently, risk aversion has not been kind to the loonie.

Below are some other highlights of the week:


  • USD: US consumer prices were flat last month (+0.3% vs. +0.3%), ending three-months of price increases as falling gas costs kept inflation at bay. Core-prices have risen +0.2%, m/m, and +2.3%, y/y. The annual rate for the overall and core continue to hover above the Fed’s+2% target. Despite falling gas prices easing overall inflation, rising core could limit the Fed’s ability to stimulate the US economy further, even by additional bond buying.
  • USD: Retail sales grew just +0.1% headline and ex-autos, below market expectations of +0.2%. Analysts note the sales print is to some extent a payback after a strong Q1 gain. Last month saw a particular weakness in building materials and gas station receipts on the back of weaker gas prices.
  • USD: NY Empire State manufacturing rebounded this month. The business conditions index rallied to 17.09 after falling 14 points to 6.56 in April. Most of the sub-indexes improved like new orders, shipment, labor conditions and the employment index. However, price measures eased this month as did optimism about the future.
  • USD: Housing starts beat expectations, rising to +717k vs. +680k. On the flip side building permits dropped back down from +769k to +715k after March’s +62k surge. It remains the second highest monthly reading in just under four-years.
  • USD: IP rebounded last month, jumping +1.1%, m/m, further proof of a healthy demand for factory goods. Other data showed that US Capacity utilization also rose to +79.2% from a revised +78.4%. Big picture however, operating rates remain below their long-run average, just above +80%.
  • CAD: March Canadian manufacturing shipments gained +1.9%, beating expectations of a +0.4% monthly rise. The gain was led by an increase in sales from petroleum and coal products.
  • USD: The weekly EIA reported crude inventories were up +2.1m barrels just above weekly expectations of +1.5m.
  • CAD: Foreigners reduced their Canadian security holding for the second consecutive month (-$2b). On the flip side, Canadians bought the largest amount of foreign product in five-years last month (+$6.3b, with US equities accounting for +60%).
  • CAD: Canadian manufacturing shipments rallied in March, up +1.9% vs. +0.4% expectations.
  • CAD: Wholesale trade climbed +0.4% to +$49b in March, mostly on the back of motor vehicles and the parts sector. Sales volumes were also unchanged on the month.
  • CAD: BoC quarterly review stated that “delay or front loading of fiscal consolidation may cut global GDP 7-8% by 2015. Monetary policy may be needed to support financial stability in exceptional circumstances” In translation, Governor Carney has little concern for the Euro meltdown and is flexible for liquidity injections if required.
  • USD: Level of US initial jobless claims remained unchanged, w/w, at a seasonally adjusted level of +370k. The four-week moving average falls to the lowest level in more than a month (-4.7k to +375k). The data suggests that last month’s spike is likely due to seasonal factors. The May employment report is likely to confirm the slower trend in hiring that emerged in March.
  • USD: The Conference board’s leading economic indicators index slid -0.1% last month, the first drop in eight-months. Negative contributions came from last month’s contraction in building permits and a jump in initial claims. The broad softness in this month’s data implies weak growth in the latter half of Q2.
  • USD: Philly Fed truly disappointed and missed all market expectations, falling from +8.5 to -5.8, the worst print in eight month. The negatives came from new orders, a big plunge in the employment and the future activity index.
  • CAD: Canadian April CPI (nsa) +0.4%, m/m and +2%, y/y; core +0.4% and +2.1% y/y. The market was looking for a headline print of +0.3% and +0.2% respectively. This has the hawks wondering when Governor Carney will pull the trigger. Despite probably being the first G8 country that is going to actually hike rates, the market is beginning to price in no hike this year after a disappointing Canadian GDP print in February, and because of the continued euro-zone turmoil.



ASIA Week in FX



  • Inflation letters and Expectations are released in NZD and GBP
  • CBank statements, announcements and minutes come from JPY and GBP
  • USD, CAD and GBP provide Home and Retail Sales numbers
  • GBP has quarterly growth
  • HSBC Flash manufacturing is delivered by CNY
  • German ifo Business Climate will pique EUR interest
  • USD will finish the week with Durable goods and Claims


Content is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Business Information & Services, Inc. or any of its affiliates, subsidiaries, officers or directors. If you would like to reproduce or redistribute any of the content found on MarketPulse, an award winning forex, commodities and global indices analysis and news site service produced by OANDA Business Information & Services, Inc., please access the RSS feed or contact us at info@marketpulse.com. Visit https://www.marketpulse.com/ to find out more about the beat of the global markets. © 2023 OANDA Business Information & Services Inc.

Dean Popplewell

Dean Popplewell

Vice-President of Market Analysis at MarketPulse
Dean Popplewell has nearly two decades of experience trading currencies and fixed income instruments. He has a deep understanding of market fundamentals and the impact of global events on capital markets. He is respected among professional traders for his skilled analysis and career history as global head of trading for firms such as Scotia Capital and BMO Nesbitt Burns. Since joining OANDA in 2006, Dean has played an instrumental role in driving awareness of the forex market as an emerging asset class for retail investors, as well as providing expert counsel to a number of internal teams on how to best serve clients and industry stakeholders.
Dean Popplewell