Canadian economic calendar was quiet for the past week. Retail Sales data matched expectations @ 0.6%. Core Retail Sales printed 0.0%. Oil prices kept afloat over this past week, as the OPEC meeting date of 30th November gets closer. The meeting is expected to lead to a deal on production cuts. We can’t deny the correlation between oil and CAD. The struggles OPEC is going through if an agreement is not established we will probably see CAD get weak. The opposite however would mean good news for CAD if an agreement to cut productions is agreed upon.
MY BIAS ON CAD?
– BEAR on the CAD
-OPEC reaching an agreement doubtful
-100% interest rate hike factored
Retail Sales came out as predicted @ 0.6%, Wholesale Sales came out @ -1.2% and Core Retail Sales came out below expectations @ 0.0% with expectations being @ 0.5%. The previous week BoC Deputy Governor Timothy lane spoke about BoC monetary policy and the Fed and its impact on Canadian economy. BoC will have to wait and evaluate the effects of the FEDs decision before making any decision on Canada’s monetary policy. Governor Lane also said that they are free to adjust Canadian policy interest rate in context with Canadian economic conditions, meaning they don’t have to move step by step with the FED.
The Monetary Policy Report shows that BoC expects growth in the economy to increase from 1.1% this year to about 2.0% in 2017 and 2018. BoC is also monitoring certain economic events that can affect the Canadian economy and pose risks to the inflation outlook.
SUMMARY OF WHAT IS BEING MONITORED
-US firm creation, investment & industrial production
-US labour force participation rate
-Indicators of future oil supply, including investment intentions in the energy sector
-US business investment & other sources of demand for Canadian exports
-Adjustment pressures on commodity prices
-Financial imbalance in China
-Global financial volatility
-Housing activity see more
On the oil front, oil dropped due to increasing doubts that OPEC will reach an agreement.
The reason for this is:
-Meeting with non-OPEC producers was cancelled after Saudi Arabia snub
-Russia would prefer output freeze, Iraq agrees to supply cut
If OPEC reach an agreement than we would expect some Canadian dollar strength, but with Russia pulling out of OPEC oil production talks, and oil dropping in more than two months, it looks unlikely that an agreement will be reached to cut production.
OPEC accord skepticism
OPEC monthly oil market report
Oil weekly review 21-25 Nov
US DOLLAR vs CANADIAN DOLLAR
Canadian Core retail sales posted below expectations of 0.5% to 0.0%. Crude Oil was @ $48 per barrel ahead of Wednesdays OPEC meeting. The dollar continued to be strong as market factored in a 100% interest rate hike from the FED in December.
CAD vs EURO & GREAT BRITISH POUND
No major releases this past week. European PMI data was positive. Italy’s referendum risk remains as country will vote on December 4th. Chancellor Hammond’s statement forecast was that Brexit would knock 2.4% off of growth.