Will the Loonie end another week lower against its counterparts? Here’s a list of catalysts you should watch closely.
CPI and retail sales reports (Nov. 23, 1:30 pm GMT)
Both the inflation and retail sales reports printed lower than markets had expected in September. Retail activity, for example, fell by 0.1% when analysts had priced in a 0.3% uptick.
Meanwhile, headline CPI fell by 0.4% instead of holding flat. Even worse, ALL three of the BOC’s preferred measures for the core reading retreated for the first time since November 2016!
This week markets expect to see a 0.2% increase in core retail sales and a 2.2% increase in annualized CPI numbers.
Recall that the Bank of Canada (BOC) recently hinted that it could raise its rates faster than many are anticipating.
If this week’s top-tier reports print stronger-than-expected numbers, then we might see the Loonie shoot higher across the board.
Last Week’s Price Review
The Loonie was outpaced by the Swissy and is now the third worst-performing currency of the week (as of 6:00 pm GMT), which is a slight improvement since the Loonie limped to the finish line in last place last week.
The Loonie’s price action looks like a chaotic mess, but if we simply remove GBP/CAD from the overlay, then we get this:
As you can see, the Loonie was taking directional cues from oil prices again. And unfortunately for the Loonie, oil prices are down in the dumps yet again.
Hopefully, Saudi Arabia and OPEC will not be cutting oil production. Oil prices should be much lower based on supply!
— Donald J. Trump (@realDonaldTrump) November 12, 2018
Oil prices did try to claw their way back up starting on Wednesday, thanks to a rumor that OPEC members and their partners were supposedly concerned about growing oil supply and falling oil prices. And a 1.4 million bpd oil cut deal in 2019 was supposedly discussed as a possible option.
That rumor also caused a bullish knee-jerk reaction on most CAD pairs. However, the Loonie quickly gave back its gains for no apparent reason and even as oil prices continued to recover.
Oil prices would turn lower again during Wednesday’s U.S. session, but the Loonie got a bearish kick before oil prices went back down.
And the apparent catalyst was U.S. House Representative Bill Pascrell’s comments during a Bloomberg interview since Pascrell warned that the USMCA (the revised NAFTA deal) needs changes not only “in the legislation but more enforcement” before Democrats of the U.S. House of Representatives agree to pass the deal.
And remember, the Democrats took control of the U.S. House of Representative during the midterm elections, so Pascrell’s comments are bad news for the USMCA deal.
Another noticeable instance when the Loonie weakened before oil prices did is during Friday’s U.S. session.
And oddly enough, the Loonie appears to have been weakened after Dallas Fed President Robert Kaplan and Fed Vice Chair Richard Clarida expressed some cautious views.
The Loonie may have just fallen victim to opposing currency price action, but it’s very likely that Kaplan’s comments, in particular, may have kicked the Loonie lower since Kaplan warned that (emphasis mine):
“Growth in the United States this year is going to be close to 3 percent. What I’m conscious of is part of the bump this year is all due to the fiscal stimulus. The government spending that we talked about. Not the corporate tax reform so much, as the individual tax cut financed by increasing debt to GDP. That’s going to start to wane into ’19 and ’20.”
And remember, the U.S. is Canada’s main export market, so if U.S. economic growth weakens in 2019 and 2020, then Canada’s own growth prospects will likely deteriorate.