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The Loonie finally logged in losses after winning pips for two consecutive weeks. Will this week’s catalysts put the comdoll back in the bulls’ good graces?

CPI and retail sales reports (July 20, 1:30 pm GMT)

Last month the Loonie was on a downtrend before weaker-than-expected inflation AND retail sales numbers gave the comdoll the final kick of the week.

Canada’s retail sales dropped by 1.2% in April, its fastest decline in more than two years, as bad weather hit autos and gardening equipment.

Meanwhile, consumer prices showed a 2.2% gain from a year earlier in May, which is higher than the Bank of Canada’s (BOC) 2.0% target but is lower than the 2.5% uptick that markets had expected.

This time around analysts expect CPI to come in at 1.9% in June while retail sales shows no change May.

Will these releases cause volatility for the Loonie pairs again?

Last Week’s Price Review

The Loonie is currently mixed but a net loser (as of 5:00 pm GMT), which would put an end to two consecutive week of net wins for the Loonie.

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

The Loonie traded roughly sideways from Monday until Wednesday, likely because there were no major catalysts and oil prices were also range-bound. Moreover, it’s also likely that traders were hunkering down for the BOC statement.

And when the BOC finally announced a rate hike, the Loonie tried to jump higher across the board.

However, the Loonie’s would-be rally was cut short, very likely because oil prices were slumping at the time due to the Greenback’s strength and news that the U.S. would consider granting waivers to some of Iran’s crude buyers, as well as reports that Libya would reopen its ports to start exporting oil again.

The Loonie’s slide wasn’t too severe, though, likely because CAD bulls were fighting back since the the BOC maintained its forward guidance that:

Governing Council expects that higher interest rates will be warranted to keep inflation near target and will continue to take a gradual approach, guided by incoming data.

And since the BOC just hiked, the BOC’s forward guidance implies that the BOC will continue to hike as long as the Canadian economy continues to meet or beat the BOC’s expectations, which is a rather hawkish message.

The BOC did express some concerns about trade, but when Boc Boss-man Poloz was asked about it during the presser, he had this to say (emphasis mine):

“The escalation of trade actions was quite a part of our discussions but we agreed very early on that it was not going to be the basis for our decision. But it’s something we need to keep ourselves well informed on, and it’s why I carefully laid out the channels in my opening remarks, because a lot of people don’t understand just how complicated that type of shock is for the economy.”

Poloz was also asked about Trump’s auto tariffs and Poloz replied as follows (emphasis mine):

“The short version is that the economy slows down … but inflation picks up quite significantly, both because 25 percent on cars and so on would affect inflation directly, any model that I know of would predict that the exchange rate would … depreciate, so for two reasons inflation would be rising.”

“We would need to take all that into account and see what room to manoeuvre their might be to help buffer the economy … the inflation part would probably dominate that analysis.”

Anyhow, nothing overtly dovish from the BOC. In fact, the BOC’s overall message was rather hawkish, which is probably why the Loonie was not hurt too badly by the slump in oil prices.

Oil did eventually recover on Thursday and the Loonie did seem to take directional cues from recovering oil prices. However, oil prices dipped during Thursday’s U.S. session but the Loonie only fumbled a bit on some pairs before soldiering on and climbing higher on most pairs.

This is a bit weird, but it’s possible that post-BOC demand is still present. Some market analysts, meanwhile, pointed to Greenback weakness and improving risk sentiment, which makes sense since the Loonie is now also a higher-yielding currency.

At any rate, the Loonie continued to move broadly before becoming more mixed when Friday’s London session rolled around.