Robust Data Helps Push Loonie Higher

Daily Analysis - 23/06/2017

Accelerating Retail Spending and Higher Energy Prices Spur Canadian Dollar Rally


Even amidst the abundant concerns regarding Canadian household debt and surging property values, there are green shoots highlighting that not all risks for the outlook are to the downside.  The notable pickup in household spending combined with the modest increase in crude prices helped the Canadian dollar improve against most major peers, helping the currency sustain its most recent winning streak.

Canadian Dollar Climbs After Strong Retail Results

A combination of rebounding oil prices and positive retail sales momentum helped the Canadian dollar finds its footing on Thursday against peers.

Sales activity managed to outpace market expectations for the month of April, with headline month over month purchases climbing 0.80%, slightly above the higher revised reading from March.

The core retail figure, which excludes the more volatile automobile sales component, managed to top forecasts by a wide margin, coming in at 1.50% compared to estimates of 0.70%.

The big drivers were gains at the nation’s gas stations amid higher prices while home improvement stores also benefited from the increased retail spending.  Bolstering the Canadian dollar further was the moderate rebound in oil futures, pushing the EURCAD pair as low as 1.4736 before encountering support and reversing modestly higher overnight.


Natural Gas Hits 15-Week Low

Amid seasonal factors and growing inventories, US natural gas futures plunged to 15-week lows on Thursday despite the prospect of a tropical storm disrupting production in the Gulf of Mexico.

At this point, traders are not anticipating a dramatic decline in the total amount of output, accounting for the continued downward pressure on prices.  In addition to the storm forecasts, the Energy Information Administration reported another natural gas stockpile increase for last week, with the amount of gas held in storage rising by 61 billion cubic feet after a 78 billion cubic foot build a week prior.

However, the downturn in prices may not be long-lived as the summer months evolve, especially if higher temperatures increase utility energy demand.  As a cheap alternative, natural gas is now more competitively priced for power generation.

After bottoming at $2.858 per MMBtu on Thursday, prices have since managed to retake the $2.900 level.


Mexican Central Bank Hikes Rates to Highest in 8-Years

Higher inflation has forced the Banco de Mexico to increase the benchmark interest rate for the 7th time in an as many decisions as policymakers work to steer the economy amidst considerable price pressures.

Figures compiled by the Instituto Nacional de Estadistica y Geografia showed headline inflation accelerating to 6.16% in May compared to the 5.82% reported back in April, marking the fastest pace of price growth since 2009.

Surging energy and housing costs alongside growing utilities and food prices spurred the upside, forcing the Central Bank to raise rates by 25 basis points to 7.00% during the decision on Thursday.

Any further upside in inflation could increase the pressure on policymakers to continue tightening policy to offset additional pressure on the economy.

The kneejerk reaction to the decision was a sharp uptick in the Peso, with USDMXN slipping as low as 18.0297 before a modest correction higher.


UK Factory Orders Rise By Most in Decades

The latest data compiled monthly by the Confederation of British Industry highlights the progress of the economy despite ongoing Brexit negotiations unfolding in the background.

According to the group’s measure of industrial trends orders, manufacturing orders reached the highest point in nearly 30 years as a combination of a weaker Pound and expanding exports helped bolster expectations.

Apart from the highest print for factory orders since 1988, export growth has also reached a multi-decade high, increasing at the fastest rate in 22 years.  Besides delivering a dose of optimism at a time when the economic outlook is mixed, the figures highlight the growing pressure on policymakers to adjust monetary conditions.

Should this positive momentum persist, the Bank of England may find itself tightening interest rates before the end of the year.

After modest gains on Thursday, GBPJPY is extending gains ahead of the European open.


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