Despite a wave of bullish economic data, the Canadian Dollar remained relatively unchanged against its U.S. namesake on a directionless week of trading. In fact, the USDCAD rallied on the heels of a stronger-than-expected trade balance report on Thursday to return it to the weeks open. A modest recovery on Friday saw the pair close at C$1.1240, but the lack of material strength in the Canadian currency casts a shadow on the potential for future declines in the USDCAD pair.
Moving forward to the coming week, analysts predict relative weakness in subsequent international monetary flow data as well as domestic sales reports. On Monday, median estimates call for a 0.3% decline in New Motor Vehicle Sales for the month of June. Though the print would be an improvement on Mays 1.0% drop, it could signal continued weakness in national spending. On the following day, markets likewise predict a pronounced decline in Canadian Manufacturing Shipments for the month of June. It is worthwhile to note, however, that Junes international trade balance reflected a large surplus on strong exports and declining imports. Thus Wednesdays report may actually print considerably better than expected, with some analysts calling for as much as a 0.6% gain for the month. The strong trade report and potentially bullish manufacturing shipments data may come to nothing, however, if Thursdays International Securities Transactions figures come in at consensus estimates. Predicted to fall nearly 50% to a net inflow of C$3.000 Billion, the number would reflect decreased confidence in the Canadian economy and the potential for future declines in investment. Finally, to round out the week of data, traders forecast a modest 0.4% gain in domestic Wholesale Sales?a weak result compared with the 0.9% seen in May. Thus USDCAD bears may have a difficult weak ahead if numbers do not significantly improve. It is worthwhile to point out, however, that the Canadian currency has recently seen strength (and subsequent weakness) on fluctuations in worldwide oil prices. This, much more than any recent economic data, seems to be the primary driver of the USDCAD currency pair.
The Canadian dollar made a clear break with the past week of data, declining on bullish economic news and instead trading off of oil prices to remain relatively unchanged on the week. Indeed, Wednesdays better than expected International Merchandise Trade surplus was quickly followed by a large decline in the domestic currency. Originally thought to print a C$4.3 billion surplus, a gain in exports and drop in imports took the headline figure to C$4.7 billion. This was an especially bullish result given the fact that exporters have had a difficult time coping with higher interest rates and a Canadian dollar at 18-year highs. Clearly, if this trend is to continue, fears of slowdown in the heavily export-dependent economy may subside. Likewise, both Tuesday and Wednesdays housing reports showed substantive gains in New Housing prices and starts. The price index unexpectedly bested Mays healthy growth rate, printing at a 1.4% monthly appreciation. Likewise, housing starts showed a considerable addition of 236.5K new homes for July. Coupled together, these reports paint an optimistic outlook on a key sector of the domestic economy. Time will tell if upcoming reports will likewise surprise to the upside, but markets seem to pay little attention to strong news. It will likely take a substantially improved outlook on the economy as a whole to bid the Canadian dollar past clearly defined price support levels and to fresh 18-year highs.
