The Canadian dollar rose on Thursday after the release of retail sales data showed a gain of 0.8 percent and an even bigger jump when excluding auto sales. Core retail sales surged 1.5 percent validating the view of the Bank of Canada (BoC) on economic growth. Second quarter growth appears solid and is well within what is needed for a rate hike before the end of the year. Inflation data out on Friday, June 23 at 8:30 am EDT will give freighter insight into the state of the Canadian economy.
Canadian policy makers have been worried about the rise of household debt and the retail sales gain is mixed news for that reason. Housing and auto expenditures have risen with Canadian personal debt up to 166 percent of income. Core inflation will be an important data point for the central bank governor to decide when to pull the trigger on what appears is an impending interest rate move upwards. The loonie also benefited from gains in oil prices and the news that Berkshire Hathaway (NYSE:BRKa) will provide a C$2 billion loan to Home Capital Group Inc. (TO:HCG) and take a 38 percent stake in the troubled mortgage lender.
Oil prices bounced back slightly on Thursday after hitting 10 month lows. Energy prices are facing a losing battle with oversupply. The Organization of the Petroleum Exporting Countries (OPEC) and other major producers production cut has only stabilized prices, but as the US and others not part of the deal ramp up production prices have begun to slide down. Rifts between OPEC members are anticipated to escalate which could end up ending not only the agreement but the cooperation of the group as a whole.
Canadian Prime Minister Justin Trudeau commented on steel exports to the US. The Trump administration is researching the probability of steel exports posing a risk to the security of the US. Trudeau said it was “silly” for Canada to be on that list. Trade topics will begin to heat up as NAFTA renegotiations talks are expected to begin in mid August.
The USD/CAD lost 0.624 percent in the last 24 hours. The pair is trading at 1.3236 after the release of the Canadian retail sales and a bounce in oil prices boosted the loonie. The USD was held back by Fed member Bullard, a known policy dove, who called the projected rate path unnecessarily aggressive. He did say that the central bank should be reducing its balance sheet soon.
Retail sales painted a solid picture of the Canadian economy and it is now up to the inflation release on Friday to corroborate the optimistic view of the Bank of Canada (BoC) top policymakers.
Oil gained 0.299 percent on Thursday. The price of West Texas Intermediate is trading at $42.53 after touching lows of $42.05 earlier in the session. The price of oil continues to be caught between the OPEC oil production cut and the ramp up in production from other producers. Demand is proving to be a tie breaker as it remains subdued creating a glut even as some of the world’s largest producers are reducing their output.
Compliance to the OPEC deal was 106 percent in May. Saudi Arabia has been the main driving force of the deal and has done the heavy lifting by over cutting when needed. The change in leadership in the kingdom could also signal a shift away from that role, or vice versa become even more vocal on the role of the OPEC and oil prices.