This weeks light calendar left the loonie to be pulled by other forces. On Monday, the currency popped its head back up to near the 28-year highs it saw early last week, bringing the USD/CAD pair below C$1.0960. The run could not be sustained however, and the loonie, was pummeled by lower oil prices and positive US data, causing the uni to drop off about 280 pips as the week progressed. Next week has some heavier releases in store that could lend a helping hand to the loonie. Starting Monday, international securities transactions are expected to read at C$3 billion in April, a bit less than the month prior.
Wholesale sales for April are expected to have risen by 0.4 percent, after a rise of double that in March. The March figure however was partially a correction from the February decline, so a lower April reading will still suggest healthy household spending. Scheduled for Tuesday will be releases of inflationary figures. The consumer price index is expected to have risen during May by 0.3 percent, slightly less than April. This would bring year-over-year headline inflation to 2.7 percent, higher than Aprils reading of 2.4 percent. Core inflation, after unexpectedly dropping during April, is expected to have also risen during May by 0.2 percent, producing an annual rise of 1.7 percent. Even after tamer-than-expected inflationary readings last month, the Bank of Canada decided to raise the lending rate by 25 basis points to 4.25 percent. With economic indicators beginning to come in a litte more mixed, the BoC is keeping close watch on the effects of its monetary tightening streak that began last September. The economy continues to show signs of strong growth however and high inflationary numbers could put the BoC into action yet again at its next meeting. The docket is cut short on Wednesday again this week. April retail sales data, due for during the session, are expected to have risen 0.3 percent. This is considerably less than the record 1.5 percent jump in the month prior as gas prices climbed higher during the month and diverted spending. Taking the brunt of this energy-fueled decline are likely auto sales. The figure not including autos is expected to show relatively healthy growth of 0.5 percent. The final release of the week is the leading indicators for May which are expected to rise 0.4 percent, 0.1 percent less than in April. Consumer spending and equity inidices, the two main factors of the positive April figure, seemed to hold tight though May, albeit not quite as well as in April.
Last week, the docket opened with a disappointment with a first quarter capacity utilization rate which dropped more than expected to 85.9 percent as the soaring value of the Canadian dollar as compared to the US dollar cooled trade with the countrys largest export desination. Luckily for the loonie, traders were still riding high on Monday from the previous weeks incredible jobs data. Also, despite the drop, capacity utilization is still very high and is a relatively minor consideration in the Bank of Canadas rate decision. The optimism coming from speculation of another rate hike at the next meeting sent the loonie up on Monday for its only breathe of fresh air, even while ignoring a heavy drop in oil prices. On Tuesday, the loonie was not so lucky, falling almost 150 pips as oil prices continued to drop on news that the Iranian nuclear argument may be cooling and the first hurricane of the season was projected to miss refineries. The fall was aggravated by disappointing economic releases. April manufacturing shipments fell a full 1 percent more than expected, by 1.5 percent. Canadian manufacturing suffered from higher interest rates, a strong Canadian dollar and competition from Chinese goods; but the drop during April may have exaggerated the weakness as it was largely due to a sharp fall in aerospace production. New motor vehicle sales also fell during April, although 0.3 percent less than expected, by 0.7 percent. Preliminary numbers show that this fall will continue through May as higher borrowing costs are starting to discourage consumers from making larger purchases. The rest of the week was void of releases and the loonie traded in a tight band around C$1.1145. But, the currency could not hold anymore on Friday with the double hit of a US dollar rally after better than expected US data and the announcement that China is going to tighten monetary policy which could cool demand for commodities.
