The Canadian dollar inched higher overnight. It may be a busy week, but the Canadian dollar’s direction will be governed by broad U.S. dollar moves, at least until the end of the week. On Friday, Canada Retail Sales and Consumer Price Index reports are released. They will be under scrutiny because the Bank of Canada said that policy decisions are data-dependent.
Canada June CPI is expected to rise 2.5%, y/y well above the 2.5% recorded in May. More importantly, Core CPI is forecast at 1.4% vs 1.3% rise in May. Retail sales data is expected be flat (.0%) which is an improvement over April’s 1.2% decline. If these reports surprise to the upside, markets will boost the odds for a September rate hike. The Canadian dollar will rally as a result.
North American Free Trade Agreement uncertainty continues to be a huge drag on Canadian dollar gains. The Mexican election is over. which suggests that new trilateral talks will begin. Canadian dollar moves will be subject to positive or negative headlines about the talks.
Canadian dollar vulnerability to U.S. dollar sentiment will be more pronounced this week. It is Wall Street earning’s report season with a large number of firms reporting earnings. Equity markets have been climbing on expectations for higher than expected earnings. Rising U.S. stock markets underpin the U.S. dollar, which will undermine the Canadian dollar by default.
Russian President Vladimir Putin and U.S. President Donald Trump are meeting in Helsinki this morning and traders are on "headline alert." The U.S. dollar is subject to large swings, depending on Trump’s comments as has been seen in the recent past. Sterling sank and then soared following contradictory statements from the U.S. president on Friday. The same type of price action occurred in USD/CAD trading after the G-7 summit.
Canadian dollar traders will be paying close attention to U.S. Federal Reserve Chair Jerome Powell’s congressional testimony on Wednesday. Last week, Powell said the economy was in a "good place", and other Federal Open Market Committee members echoed his views. A positive economic outlook and more rate hikes will underpin the U.S. dollar.
The Canadian dollar has not seen a lot of benefit from rising oil prices. West Texas Intermediate (WTI) the North America benchmark price climbed to $75.25/barrel on July 2, and USD/CAD was trading at $1.3220. Since then, oil prices have declined, and the Canadian dollar has appreciated. There is a risk that if oil prices come under renewed selling pressure due to fears that the Organization of Petroleum Exporting Countries' oil production is exceeding production quotas, the Canadian dollar will suffer as well.
There are a lot of moving parts driving U.S. dollar direction this week, which suggests a choppy market for traders and the Canadian dollar.
Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians
