The Canadian dollar got knocked for a loop yesterday after Canadian Wholesale Sales for May were sharply weaker than expected. Statistics Canada said "Wholesale sales were down 1.8% in May to $63.8 billion, following five consecutive monthly increases. Lower sales were observed in six subsectors, accounting for 86% of total wholesale sales. The motor vehicle and motor vehicle parts and accessories subsector was the leading contributor to May’s retreat."
The weaker than expected data was enough to spook traders who were already concerned about the loss of upside momentum and encouraged them to book profits on short-term gains.
The Canadian dollar was also undermined by broad U.S. dollar strength. Last night, President Trump tweeted "I am pleased to announce that a deal has been struck with Senate Majority Leader Mitch McConnell, Senate Minority Leader Chuck Schumer, Speaker of the House Nancy Pelosi, and House Minority Leader Kevin McCarthy - on a two-year Budget and Debt Ceiling, with no poison pills...."
The news that markets won’t have to deal with the distraction of another U.S. government shutdown for the next two years underpinned the U.S. dollar and led to broad gains against the major G-10 currencies.
The New Zealand dollar was the biggest loser, shedding 0.61%, but Trump’s tweet wasn’t the only reason. Bloomberg reported that the Reserve Bank of New Zealand was exploring new "unconventional monetary policies" in an effort to stimulate its economy. The Australian dollar shrugged off the U.S. budget news and managed to recoup all of its overnight losses in early Toronto trading.
The Japanese yen extended yesterday’s losses. Prices were undermined by domestic stock market gains and an uptick in US 10 year Treasury yields.
In the U.K., the Conservative party elected Boris Johnson, to replace Theresa May, making him Prime Minister of Great Britain. He trounced his closest rival, garnering 66% of the vote. He inherits a government with a tiny working majority which suggests his tenure may be short-lived.
Sterling has been sliding since last month on the prospect of Johnson's premiership and it extended those losses overnight, falling from $1.2477 to $1.2420. However, the losses were fully recouped in Toronto trading in a textbook case of "sell the rumour, buy the news."
The U.S. dollar scratched out gains against the euro. Traders are concerned that Thursday’s European Central Bank (ECB) meeting could lead to a more dovish result than previously expected. ECB President Mario Draghi has expressed his unhappiness with the lack of economic growth and low inflation. His view is supported by the recent eurozone data which has been mostly on the weak side.
The U.S. dollar gains may be extended if today’s U.S. Housing Price and Existing Home Sales data are higher than expected. The Canadian dollar would also suffer.
Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians
