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The Loonie benefited from higher oil prices last week but still ended weaker against everything but the dollar. Will it dance to its own tune this week? Here are potential catalysts:

Canada’s retail sales (Feb 22, 1:30 PM GMT)

In last month’s release the Loonie was spared the violent reaction over a headline retail sales miss by printing a significantly stronger core retail sales figure.

Apparently, lower car dealer purchases dragged the headline figure lower while gasoline stations, electronics, and appliance store sales got a boost from Black Friday purchases.

This week market players are expecting a 0.3% growth (from 0.2%) for headline retail sales while core figures are expected to come in at a weaker 0.3% (from 1.6%).

Canada’s monthly inflation data (Feb 23, 1:30 PM GMT)

The Loonie barely reacted to Canada’s CPI numbers last month, but that’s mostly because market players were worrying over the leaders’ NAFTA deals instead of economic releases.

On Friday we’ll see Canada’s inflation growth for the month of January. For newbies out there, you should know that the Bank of Canada (BOC) is taking a cautious approach to economic releases like inflation even as it hinted that the next move will more likely be a rate hike rather than a rate cut.

Headline CPI is expected to have grown by 0.4% after slipping by 0.4% in December. Canada’s core CPI and the BOC’s other measures of inflation (common, median, and trimmed CPI) will also be published at the same time, so make sure you stick around in case we see surprises!

Oil price movements

Crude oil has been on a wild ride this year and this week’s price action might not be an exception.

A weaker dollar (oil’s funding currency); prospects of the OPEC extending its oil production limitations, and overall risk appetite have given oil prices bullish momentum. And unless we see any catalysts to trigger a sentiment reversal, then we’ll likely see oil prices continue to support the Canadian dollar.

Last Week’s Price Review

The Loonie is the second weakest currency after the Greenback (as of 6:00 pm GMT). Most analysts only focus on USD/CAD, though, so they keep praising how strong the Loonie is this week.

Overlay of CAD Pairs & Crude Oil (Black Line): 1-Hour Forex Chart
Overlay of CAD Pairs & Crude Oil (Black Line): 1-Hour Forex Chart

As you can see above, oil is up for the week but the Loonie weakened against everything except the Greenback.

Most (practically all) analysts only look at USD/CAD without considering how the Loonie fares against a basket of currencies, though, so accurate commentary on the Loonie was hard to come by this week.

With that said, the Loonie appeared to be taking directional cues from falling oil prices on Monday and Tuesday.

Wednesday is when the Loonie’s price action became rather wonky since most Loonie pairs (other than USD/CAD) failed to track the surge in oil prices in the wake of the better-than-expected U.S. CPI report.

Incidentally, the Loonie’s failure to track oil prices higher due demand for the other currencies is one of the main reasons why the Loonie is a loser this week.

The other reason is the persistent selling pressure on the Loonie on Thursday and Friday. And while there were signs that the Loonie was taking hits when oil prices dipped, bearish pressure on the Loonie becomes quite noticeable whenever the Loonie failed to move higher whenever oil also moved higher. A clear example of this is the Loonie’s reluctance to go higher when oil got a second wind on Thursday.

As to why the Loonie was so anemic, there’s no clear reason for that. And as mentioned earlier, practically all market analysts were preoccupied only with USD/CAD’s price action.

Anyhow, the likely reason for the bearish pressure on the Loonie is NAFTA-related jitters since there were talks earlier during the week that Canada will still have a tough time with its main trading partner (the U.S.), even if NAFTA is successfully renegotiated.

And it doesn’t really help that Canadian and U.S. representatives were trading verbal blows over NAFTA on Tuesday.