The Loonie finally dug itself out of the losers’ pit and capped the week with positive pips. Will the bulls extend the momentum this week?
Let’s take a look at some catalysts that might spur volatility for the comdoll:
Inflation reports (Dec 19, 1:30 pm GMT)
Consumer prices in Canada accelerated faster than markets had expected in October, which helped the Loonie climb from its deep losses last month.
This time around, analysts expect to see prices dip by 0.1% after October’s 0.3% uptick. The annualized reading is also expected to slow down from 2.4% to 1.9%.
Meanwhile, the Bank of Canada (BOC)’s measures of inflation are expected to maintain their October rates with the common, median, and trimmed CPIs remaining at 1.9%, 2.0%, and 2.1% respectively.
Significantly weaker-than-expected readings could weigh on the Loonie since weak consumer price increases, together with the impact of lower oil prices and uncertainty over Canada’s relationship with its trading partners will likely keep the BOC from raising its rates further in the near future.
Retail sales (Dec 21, 1:30 pm GMT)
Much like the CPI release, last month’s retail sales report surprised to the upside. Like in last month’s report, though, traders mostly ignored the release in favor of pricing in other catalysts.
This week market geeks are looking for a 0.6% retail sales growth after seeing a 0.2% uptick in September. Core retail sales are also facing better expectations, as analysts estimate a 0.3% growth after September’s 0.1% increase.
Uncle Sam is scheduled to release top-tier reports like its core durable goods orders and final GDP reading, so it’s likely that Loonie traders can find other factors to price in during the trading session.
Oil price action
Now that OPEC members and their friends have decided to extend their output cut deal to 2019, all eyes will go back to pricing in oil market imbalances.
Specifically, traders will be looking for signs of potential slowdown in global demand or higher production in non-OPEC producers in the foreseeable future.
Loonie traders like to take cues from crude oil prices, so y’all make sure you keep your eyes peeled for any news that might affect the demand for the Black Crack!
Last Week’s Price Review
After five consecutive weeks of net losses, the Loonie will finally get to join the winners’ club since the Loonie is currently poised to take the third top spot of the week (as of 6:00 pm GMT).
The Loonie’s price action looks a bit chaotic at first glance. But if we strip GBP/CAD from the overlay, then we get this.
As you can see, the Loonie’s price action is actually … still somewhat messy. But you can also see that CAD pairs were roughly tracking oil prices this week.
However, there was an instance when CAD pairs broadly decoupled from oil prices.
And thanks to that decoupling and the Loonie’s reluctance to follow oil prices lower on Friday, the Loonie is finally headed for its first win after five consecutive weeks of net losses.
And as marked on the overlay, CAD pairs decoupled from oil prices during Wednesday’s U.S. session since oil prices were turning lower but CAD pairs kept trending broadly higher.
CAD pairs did eventually succumb to selling pressure, but instead of slumping hard across the board, CAD pairs only dipped slightly before becoming more mixed.
It’s not clear why the Loonie showed resilience, but some market analysts were pointing to trade-related optimism because of signs of progress in trade talks between the U.S. and China.
There was also a positive (but minor) development for NAFTA 2.0 (or USMCA or CUSMA), namely the tabling of the full text of the deal in the Canadian Parliament, which starts the ratification process for NAFTA 2.0.
However, the Loonie already started decoupling before Parliament met. Also, Canada’s Parliament has adjourned for the year and won’t be back until January 28 next year, so the ratification process won’t be progressing for a while.
In any case, that weird decoupling on Wednesday and the Loonie’s reluctance to follow oil prices lower on Friday are the reason why the Loonie is finally headed for its first win after five weeks of losses.