The USD rally received a temporary setback this morning with the release of the U.S. retail sales data. American retail sales edged up 0.1 percent missing the expectations of a 0.3 percent rise. Auto sales were to blame as they had a significant drop. Core retail sales data that excludes auto fared only slightly better as it came in at 0.2 percent when 0.4 percent has been forecasted. Overall the economic indicator did not post a shocking data point. The USD did retreat across the board after the retail sales figures were announced, but it has made back all the lost ground minutes after.
The USD/CAD has broken through the 1.33 price level as there is no Canadian data on Friday to offset the rising trend of the USD. Oil is providing no support to the loonie after this week’s drop triggered by rising inventories and oil tankers queuing in the Gulf of Mexico hit record levels.
Canadian Economy Cooling, But Only Slightly
The Canadian New Housing Price Index (NHPI) came in under expectations yesterday but still a positive 0.1 percent gain in September. Vancouver and Toronto were the main drives of growth with 0.4 percent and 0.2 percent respectively and were enough to offset losses in other metropolitan areas. The 12 month increase of NHPI was 1.3 percent nationwide, with the Hamilton area rising 3.7 percent year over year. The International Monetary Fund (IMF) and the OECD had joined the Bank of Canada in issuing warnings on the possible housing bubble forming as the cost of debt is low and house prices have risen consistently. The biggest risk is that borrowers are over leveraging and could not deal with the impact of even a 25 basis points rise in a year. The Fed rate hike expectations in December have risen which will officially end the era of low rates. The overall rise is anticipated to be gradual, but that does not mean it will not hit those with longer time horizon mortgages, which are the majority.
Oil Price Heads Lower After USD Reaction to Retail Sales
The price of oil fell 2.09 percent after higher inventory data was released. OPEC commentary around higher demand in 2016 was not enough for the price to hold above $42 and fell to a low of $41.78. Venezuelan oil minister Eulogio del Pino said during an interview that the OPEC is planning an informal meeting a day ahead of the official meeting on December 4 in Vienna. OPEC members have seen the fate of their economies crumble at varying degrees since the drop in the price of crude.
The USD strength is punishing oil as it struggles with weaker global demand and a milder winter not helping boost sales. The OPEC’s meeting in December is expected to bring some cuts from the world’s biggest producers.
Next week will bring a plethora of Canadian data as manufacturing sales, foreign security purchases, inflation and retail sales data will be released. There will be two central bank appearances during the week with the release of the Federal Reserve’s minutes from the FOMC meeting and the Bank of Japan, which is holding pat on adding more stimulus to its quantitative easing program, but has not seen growth take off so might need to intervene.
CAD events to watch next week:
Sunday, November 15
All Day ALL G20 Meetings
Monday, November 16
8:30am CAD Manufacturing Sales m/m
8:30am CAD Foreign Securities Purchases
Thursday, November 19
8:30am CAD Wholesale Sales m/m
Friday, November 20
8:30am CAD Core CPI m/m
8:30am CAD Core Retail Sales m/m
8:30am CAD CPI m/m
8:30am CAD Retail Sales m/m
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Alfonso Esparza
trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
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