The Canadian dollar is consolidating in a USDCAD 1.2880-1.2980 range after steadily declining from 1.3062 last Tuesday. The Canadian dollar gains are more impressive considering that they were achieved despite the US and Canadian trade talks being at an impasse.
On Friday, a Whitehouse spokesperson said that the US is very close to a deadline where they would have to move ahead with a bilateral Mexican deal if Canada doesn’t come to terms. That deadline is September 30 or October 1. Prime Minister Trudeau said that informal talks would continue this week on the sidelines during the United Nations General Assembly meeting. The dispute resolution mechanism and Canada’s dairy industry are two hurdles that must be overcome.
The Canadian dollar has shrugged off Nafta trade talk concerns and has been tracking broad US dollar moves. Friday’s Retail Sales and Inflation reports provided additional support to the currency. Retail Sales rebounded in July rising 0.3%, month over month which economists view as a good sign, especially since the Bank of Canada raised interest rates.
The inflation report was mixed. The headline data dipped but the more critical Core CPI number rose. The results were in line with the Bank of Canada’s forecasts with core inflation helping to keep another BoC rate hike on the table.
West Texas Intermediate (WTI) oil prices climbed from $69.65/barrel on Wednesday to $72.35/b overnight. President Trump had asked Opec to raise production to help offset a rise in prices from sanctions he imposed on Iran. Opec met in Algiers on the weekend and decided to leave production levels unchanged. The Canadian dollar is not getting much if any, support from the WTI price gains. Canada’s main crude export, Western Canada Select, is trading at a CAD $44.18 discount to WTI, in part due to pipeline constraints.
Canadian dollar gains have been assisted by a rebound in domestic equity prices which have risen 1.3% in the past ten days.
Canadian dollar traders are looking ahead to Friday’s July GDP report The forecast is for a gain of 0.2%, m/m which if it occurs would give the currency a lift while disappointing data would lead to selling pressure.
However, Wednesday’s Federal Open Market committee meeting may play a more significant role in Canadian dollar direction. A US rate hike of 0.25% is widely expected and baked into current pricing levels. The key, as far as traders are concerned, will be the tone of the statement and the dot-plot forecasts. The robust US economy may lead to a somewhat hawkish statement and an upward tweak in the “dot-plot” rate forecasts. The prospect of higher than expected US rates would boost the greenback and send the Canadian dollar tumbling.
Today’s data includes Canadian Wholesale Sales for July and from the US, the Chicago Fed National Activity Index.
