The Canadian Dollar remained in the doldrums of directionless mid-August trading, finishing the week almost exactly unchanged at C$1.1249 against its U.S. namesake. Though the currency pair plummeted 1.6% following a weak U.S. Producer Price report and robust Canadian Manufacturing Shipment data, a later rally brought it to within 10 points of the weeks open. Traders look to the upcoming Retail Sales and Consumer Price inflation reports to provide more definite direction to the future of the Canadian dollar.
To start the week, Canadian Retail Sales data looks to improve on the previous months decline. Median estimates call for a 0.3% headline gain, with reports of retailers offering substantial discounts ahead of a planned sales tax cut in July. Though a rebound would certainly prove bullish for overall personal consumption, many wonder whether a soft housing price report and weak inflation will limit the retail value of such sales. Wednesdays CPI report is subsequently expected to show that prices stagnated in the month of July. Indeed, the July tax cut should produce marginally lower net costs for consumers, with consensus estimates calling for the second straight month of price drops in the monthly measure. The market impact of such a report may be muted, however, as there is virtually no speculation that the Bank of Canada will move to change rates through the end of 2007. Risks remain to the downside for the Canadian dollar, as a materially weaker result could lead to speculation of BoC rate cuts in the medium term. On Friday, markets expect that the Composite Leading Indicator results will remain unchanged against Junes 0.2% gain. Though economists monitor overall trends in the barometer of economic growth, surprises on the figure are highly unlikely given previously accurate median forecasts. The end of the week release should subsequently be a non-event.
The past week of mixed economic data provided little direction for Canadian dollar currency pairs, leaving the USDCAD just 10 points away from the C$1.1239 open. Kicking off on Tuesday, the first piece of news came in the form of a worse than expected change in monthly motor vehicle sales. Following a revised 0.8% drop in May, new motor vehicle sales continued lower with a 0.6% in June. The report was overshadowed, however, by a weak U.S. Producer Price inflation report that led the Greenback broadly weaker against major currencies. The next day, a significant surprise in Canadian manufacturing shipments results pushed the Loonie even higher against its U.S. counterpart. Predicted to gain a relatively tame 0.2% in June, the headline figure posted a 1.9% rally against a revised 0.7% drop in May. A sharp sell-off left the USDCAD 1.6% lower by Wednesdays close. This quickly changed, however, when Thursday mornings International Securities Transactions report showed that foreigners purchased a mere C$0.340 billion worth of Canadian securities in June. Representing a very significant C$5.54 billion drop on Mays result, traders were quick to sell the Canadian dollar on the news. This, coupled with significant declines in world oil prices and a weak Wholesale Sales report on Friday, left the Loonie nearly unchanged after strong gains through mid-week.
