Relief from the previous week’s selloff and strong economic reports pushed the Loonie on top last week. Let’s see if this week’s catalysts can extend the uptrend!
Retail sales (Aug. 22, 12:30 pm GMT)
Canada’s retail activity accelerated in May 2018, rising by 2.0% after April’s 0.9% decline and when analysts had only expected a 1.1% increase for the month. That’s the best reading in SEVEN months, yo!
This week market geeks expect to see only a 0.3% growth, while the core figure (which excludes volatile items such as auto sales) is only expected to print a 0.1% uptick. What’s up with that?!
While they’re lagging indicators, retail sales releases have affected the Loonie’s intraday price action before. Watch out for significant hits or misses that could tug the Loonie in either direction!
When it’s not taking cues from oil prices, the Loonie tends to take cues from trade-related updates.
Canada is out of the big boys’ table for now as the U.S. and Mexico hammer ink their bilateral papers, but progress in their negotiations is translating to progress for Canada. After all, signs of flexibility are good for Canada’s chances when it gets its one-on-one with the U.S…right?
Last Week’s Price Review
The Loonie is currently at the head of the pack (as of 5:00 pm GMT). And if the Loonie can maintain its ranking, then the Loonie can boast its fourth consecutive week of net wins.
Looking at the chart above, it looks like the Loonie only started to to take directional cues from oil prices on Wednesday. Before that, not so much.
Moreover, the overlay of CAD pairs shows that there was steady buying interest on the Loonie, so much so that the CAD pairs steadily climbed broadly higher from Monday until Tuesday.
The Loonie then reversed course on Wednesday and Thursday, before bolting higher on Friday.
But what caused the Loonie’s steady rise on Monday and Tuesday? Well, nobody really knows since market analysts are either completely silent or merely noted the Loonie’s rise without really pointing to a catalyst.
There was a narrative that the Loonie may have been a beneficiary of relief buying because of the Turkish lira’s recovery. I’m not sold on that explanation, though, since the Loonie didn’t really react much when the lira got crushed last Friday.
However, it is possible that the Loonie may have been enjoying some relief buying, not because of the lira’s recovery, but because tensions between Saudi Arabia and Canada didn’t really escalate.
It’s also possible that this tweet from Trump over the weekend may have been seen as a positive sign for NAFTA since Trump is saying here that a “Deal with Mexico is coming along nicely,” which means that it would soon be Canada’s turn to hammer out a deal.
Deal with Mexico is coming along nicely. Autoworkers and farmers must be taken care of or there will be no deal. New President of Mexico has been an absolute gentleman. Canada must wait. Their Tariffs and Trade Barriers are far too high. Will tax cars if we can’t make a deal!
— Donald J. Trump (@realDonaldTrump) August 10, 2018
It’s even possible that some market players were hoping against hope that Canada will get a chance to finally join NAFTA talks. After all, I noted in last week’s recap that Mexican Economy Minister Ildefonso Guajardo said Canada could “possibly” start joining NAFTA talks this week.
In any case, a catalysts did finally appear during Tuesday’s U.S. session, since Canadian Finance Minister Bill Morneau was speaking on Tuesday and he tried to reassure Canadian business leaders by saying that he is “cautiously optimistic” that a deal can be hammered out soon. However, Morneau was also quick to add that “there is more work to be done.”
Still, Morneau’s overall message was reassuring, which is likely why the Loonie’s rise actually accelerated even as oil prices slumped.
The Loonie’s rally would finally stall on Wednesday, though, and it looks like the Loonie was tracking oil prices again.
Oil eventually found support and was tilting upward by Thursday. However, most CAD pairs continued to encounter sellers and were drifting slightly but broadly lower. And according to market analysts, the Loonie was feeling some bearish pressure because of an unexpected delay for the Keystone XL pipeline.
No worries, though, since Canada’s CPI report surprised to the upside on Friday, which caused the Loonie to spurt higher. This final bullish infusion even allowed the Loonie to steal first place from the Kiwi.
As for details, the CPI report showed that Canada’s headline CPI increased by 0.5% month-on-month, easily beating expectations for a softer 0.1% rise. The year-on-year reading is even more impressive since it came in at a very solid 3.0%, which is much better than the 2.5% consensus, as well as the best annual reading since September 2011. And quite naturally, odds for a BOC rate hike next month increased from 20% to 30%, market analysts say.