The previous weak the loonie started off weak as it traded mostly off of weak oil prices. The focus for the week was on Core Retail Sales and CPI that was released on Thursday and Friday, as the market was looking to price in a Canadian rate hike. Core Retail Sales data came in at 1.5% beating the 0.7% forecast. By Friday the inflation data was disappointing as it came in lower than expected, dampening the odds of rate hike as early as December. The BoC’s inflation target of 2% is also being challenged by the recent low inflation data. The inflation data came in at 1.3% (YoY) with the previous reading being 1.6%. The CPI for May was 0.1%(MoM) missing the 0.2% forecast and decreasing from the previous reading of 0.4%.
The contrast here is that the BoC has reported strong economic activity to the upside despite the weak inflation reading, and comments from Poloz and Wilkins to the Canadian public to prepare for higher rates helps the market adjust its expectations. This coming week is a quiet week for the Canadian calendar with data only coming out on Friday, however Governor Poloz will deliver a speech on Wednesday. I expect usdcad to move off of U.S data and oil.
WTICrude Oil Summary
Oil Prices have been in a downward slump for quite some time. The weak oil price makes one to doubt OPEC to try and lift prices and effectively respond to oversupply. OPEC’s recent efforts to cut production are having little to no effect on the oil price. We saw oil hit a ten month low this past week, however by Thursday and Friday we saw price trying to claw its way back up. What about deeper oil cuts? Deeper oil cuts would surely help prices to drain inventories but deeper cuts seem unlikely. Russia has previously dismissed the idea and other producers have barely shown any interest. Maybe OPEC does nothing and let the market sort itself out. Whatever happens to oil the CAD will definitely be affected. WTICrude currently trading @ $43 per barrel.
ECONOMIC CALENDAR EVENTS FOR CAD AND OIL
-GDP (MoM)(APR) – FORECAST 0.2%
-RMPI (MoM)(MAY) – PREVIOUS 1.6%
-GOVERNOR POLOZ SPEAKS
-CRUDE OIL INVENTORIES – PREVIOUS -2.451M