The Canadian dollar was able to hold onto its new range centered around 1.1200 against its US counterpart last week; but with commodities dropping fast and data lending little buoyancy to traders sentiment, validating a near 28-year high becomes increasingly difficult. For the week ahead, the economic calendar is flexing its muscle with indicators of trade, inflation and sales activity delivering a much needed injection of data to help the loonie find its way on its own fundamental merits. The first indicator offered up for analysis is Mondays International Securities Transactions for July.
Economists predict the small C$343 million surplus printed in the previous month will have ballooned to C$1.500 billion. Foreign interest in Canadian investments likely relied upon the outlook for equities. A surge in M&A activity, as foreign companies looked to buy into Canadian raw material producers roaring strength, likely made its own impression in inflows while drawing other interest along with it. Moving on to Tuesday, the market will judge whether the Consumer Price Index is worthy of its reaction as the central bank seems firmly set on keeping its current level of rates. Augusts read of CPI is expected to report a pace generally inline with that of Julys. One interesting consensus is the expected cooling of the yearly headline number to 2.1 percent from 2.4 percent. Key to these predictions was the long awaited drop in energy products, especially gasoline. Moving on, the loonie will trade off of the Leading Indicators index and wholesales sales report on Wednesday. A composite of indicators used to forecast the strength of the Canadian economy in the coming three to six months, the Leading number for August is expected to hold to its 17-month slow pace of 0.2 percent growth. Since most of the indicators are known well in advance, the release is unlikely to surprise and in turn unduly influence the market. A few components poor performance, like housing and the US strength gauges, could put an unexpected negative risk in the indicator though. July wholesale sales will be the more interesting release as it heralds in the follow days retail sales figure. Expected to print 0.6 percent growth over the month, sales at the wholesale level are expected from strong auto sales in the same period, revealed in last Fridays new motor vehicle sales report. The same is true for the retailer. Doubling up on higher gasoline receipts and vehicle sales, the health of the industry looks bright as consumers continue to find more jobs and spend higher wages. When all is said and done however, the moves for the week may not fall upon the shoulders of economic releases but rather to commodity prices. Exports of necessary goods have been the engine behind Canadas impressive rate of growth in the past few years, and the steep decline in prices of many of these goods recently could remove the optimistic impression behind the economy and the struts sustaining the currency at multi-decade highs.
Coming off of a strong decline against the US currency, the Canadian dollar opened the week in a new range that removed some of the overbought stress felt for the past few months. The data that was onboard proffered neither the bullish nor bearish impetus to draw out any momentous moves. August housing starts was the first indicator off the press Monday, and its number kept the USDCAD testing its new high. According to the Canada Mortgage and Housing Corporation, builders broke ground on 213,700 new units on an annual basis in August. This was well below the predicted contraction. The slowest pace of new home construction since October was the end result of the central banks string of interest rate hikes to 4.25 percent, which in turn boosts mortgages, and a 10.1 percent year-over-year advance in the average price of existing homes. Despite the datas severity, in terms of how it could effect consumer spending, the corresponding decline in the currency only measured 50 points to the USDCADs 1.1225 resistance. Tuesdays indicators added little additional sustenance to the markets diet as the trade surplus and New Housing Price Index prints showed little disparity from predications. Housing price growth cooled from its recent record pace the month before as employment lags and expensive gasoline diverted disposable income away from bank accounts. Trade was more significant as its contracted to C$3.863 billion, its lowest levels since January of 2005, as the balance in auto shipments reported a deficit for the first time in 15 years. Thursdays manufacturing shipments was the next indicator to sway fundamentalists positioning. A surprise 0.8 percent increase in factory shipments was brought on by higher commodity values. After the report, the loonie went on to post its biggest advance for the week while leaving many traders speculating that the new range would quickly morph back into the previous band between 1.1030 and 1.1140. This was not the case however as buying momentum dried up around 1.1120 and the USDCAD was brought back to its range. Aside from the indicators available for the week, the loonie was anchored against any strong moves by massive declines in key commodities. Gold prices, over the past five days have dropped 8 percent to a three-month low $545.00 per troy ounce on American exchanges. More importantly, energy products have entered into massive downtrends. Natural gas, one of Canadas largest exports has fallen 46 percent form its high last month to a two-year low. The other commodity of import, which subsequently holds the strongest correlation to the USDCAD of any single raw material, is crude oil. Four months of prices between $78 and $67 per barrel has finally given under relief selling as inventories at major industrial hubs are topped off and global turmoil abates.
