Will OPEC and trade-related updates beat the Loonie lower across the board this week? Let’s take a look at the potential catalysts.
CPI and retail sales reports (June 22, 12:30 pm GMT)
Last month’s release showed Canada’s inflation rate at 0.3% in April, lower than the expected 0.4% uptick.
Meanwhile, retail sales numbers were mixed since the headline rate popped up by 0.6% (against 0.3% increase expected) while the core reading fell by 0.2% when analysts had seen a 0.5% uptick. Overall, the reports pointed against the Bank of Canada (BOC) raising its rates anytime soon.
This week market players expect consumer prices to rise by another 0.3% (+1.4% on an annualized basis), while retail sales is estimated to grow by 0.1%.
Since there are no other top-tier reports scheduled around the reports, traders are likely to pay close attention to the data hits or misses, as well as any revisions from the previous releases. And if last month’s price reaction is any indication, we might see strong intraday moves from the Loonie again this week.
OPEC members and friends are set to meet in Vienna this Friday and it promises to be an eventful one.
See, Saudi Arabia and Russia are widely expected to propose an increase in oil production quotas following a bit of rebalancing in the global oil scene. Thing is, members like Iran, Venezuela, and Iraq are expected to team up to block the proposal.
Who will win the clash of the (oil) titans? More importantly, how will markets react to an increase (or a non-increase?) of global oil supplies? If you’re planning on trading the oil-related Loonie, then you better pay attention to any updates on the meeting!
Global trade news
While any official NAFTA-related negotiation won’t happen until July, Loonie traders are closely-watching how the U.S. deals with its other trading partners.
Specifically, world markets will be on the lookout for increased trade tensions between the U.S. and China, two of the biggest economies in the world. If Trump and his team pull the trigger and impose tens of billions worth of additional tariffs on China’s goods, then we could see risk aversion drag high-yielding currencies like the Loonie lower.
Last Week’s Price Review
The Loonie barely lost out to the Aussie and is the weakest currency of the week (as of 5:00 pm GMT). The Loonie is therefore headed for a fifth consecutive week of net losses. Ouch!
The Loonie hasn’t been tracking oil prices too closely during the past couple of weeks, thanks mainly to NAFTA-related news and Canada’s economic reports.
However, it looks like most Loonie pairs were taking directional cues from oil prices again, likely because the forex calendar for the Loonie was almost empty. Also, Mexican Economy Minister Ildefonso Guajardo announced early on Monday that NAFTA talks will resume on July, so little to no NAFTA-related updates are expected until then.
With that said, the Loonie actually diverged from oil prices at the start of the week since CAD pairs gapped lower, very likely because U.S. President Trump had these disparaging (yet very amusing) tweets against Canadian PM Justin Trudeau over the weekend, which highlight the trade spat between the U.S. and Canada.
Based on Justin’s false statements at his news conference, and the fact that Canada is charging massive Tariffs to our U.S. farmers, workers and companies, I have instructed our U.S. Reps not to endorse the Communique as we look at Tariffs on automobiles flooding the U.S. Market!
— Donald J. Trump (@realDonaldTrump) June 9, 2018
PM Justin Trudeau of Canada acted so meek and mild during our @G7 meetings only to give a news conference after I left saying that, “US Tariffs were kind of insulting” and he “will not be pushed around.” Very dishonest & weak. Our Tariffs are in response to his of 270% on dairy!
— Donald J. Trump (@realDonaldTrump) June 9, 2018
Fair Trade is now to be called Fool Trade if it is not Reciprocal. According to a Canada release, they make almost 100 Billion Dollars in Trade with U.S. (guess they were bragging and got caught!). Minimum is 17B. Tax Dairy from us at 270%. Then Justin acts hurt when called out!
— Donald J. Trump (@realDonaldTrump) June 11, 2018
Incidentally, most Loonie pairs weren’t able to recover from those gaps and traded below last week’s closing prices (dashed horizontal line) for most of the week.
Anyhow, Loonie pairs quickly began tracking oil prices after that, although trade tensions likely continued to weigh on the Loonie on Monday since the Loonie only grudgingly moved higher when oil prices bounced back after an early dip.
Still, the Loonie kept taking directional cues from oil after that. The Loonie’s price action did become more mixed during the FOMC statement and ECB statement, though, which implies that the Loonie was vulnerable to opposing currency price during those times.
Interestingly enough, the Loonie didn’t suffer as much when oil prices plunged on Friday, thanks to growing supply jitters because of OPEC is expected to announce an oil output rise next week, market analysts say.
Oil (and most commodities for that matter) also got an extra beating when Trump finally announced tariffs against China and China promptly responded that it will retaliate in kind.