The Canadian dollar came back from the brink. The worse-than-expected inflation and retail sales reports released on Friday knocked the loonie for a loop. Canada May Consumer Price Index rose 2.2%, unchanged from April’s result but well below the 2.5% that was forecast. The April retail sales report was another disappointment. It dropped 1.2%. Markets were expecting a 0.0% result.
USD/CAD soared, rising from $1.3260 to $1.3380 in an instant and then spent the rest of Friday retracing the move. Nasty weather in April accounted for the weak retail sales data while the CPI dip was seen as an aberration. Many bank economists do not expect that Friday’s data will prevent the Bank of Canada from raising interest rates on July 12. However, they acknowledged that it increased the risk of an "unchanged" outcome.
Another major factor providing support to the beleaguered Canadian dollar was sharply rising oil prices. On Friday, the Organization of Petroleum Exporting Countries and Russia announced that they agreed to increase oil production by up to 1.0 million barrels/day. Saudi Oil Minister Khalid al-Falih noted that the actual increase would be around 600,000/barrels/day because not all OPEC members have the capacity to raise production.
West Texas Intermediate (WTI) traded up to $69.35 U.S./b on Friday, spurring the Canadian dollar higher. Today’s drop in crude prices has put a cap on additional gains.
Domestic economic data and oil prices are not the only factors concerning USD/CAD traders. Global trade tensions were ratcheted higher on the weekend. The Wall Street Journal reports that the US Administration is getting ready to announce restrictions on Chinese investment in the US as well as blocking new technology exports to China.
President Trump got into the act as well. He stoked trade tension fires, late Sunday afternoon when he tweeted "The United States is insisting that all countries that have placed artificial Trade Barriers and Tariffs on goods going into their country, remove those Barriers & Tariffs or be met with more than Reciprocity by the U.S.A. Trade must be fair and no longer a one-way street!"
Global trade concerns led to broad U.S. dollar strength overnight. The Japanese yen was the only currency to record again against the greenback due to safe-haven demand for yen. The Swiss franc was unchanged for the session.
The Canadian dollar will take direction from general U.S. dollar strength as there aren’t any economic reports on tap today.
Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians.
