USD/CAD Loonie Recovers Ahead of Bank of Canada Rate Statement

• U.S. retail sales disappoint
• Bank of Canada under pressure to cut rates
• Greek parliament to vote on debt deal

The USD/CAD depreciated this morning after the release of the United States retail sales figures. Sales dropped 0.3 percent after last month’s turnaround of 1 percent. There was a small revision downward from May’s figures. Struggling retailers show that there is little momentum from consumer spending. The data is soft across the board and put pressure on the USD.

There was no Canadian data in the first two days of the week, but Wednesday will bring a busy schedule as Canada will release its manufacturing sales at 8:30 am EDT and the Bank of Canada will publish its Monetary Policy Report and rate statement at 10:00 am EDT.

The Canadian economy has not managed to overcome the negative effects of the oil price drop, and with a positive outcome from the Iran nuclear deal there is more downward pressure expected. Manufacturing has not been able to offset the losses from commodity based industries and with the U.S. economy not picking up a rate hike by the Federal Reserve is looking further down the line. This could mean that the Bank of Canada would be forced to make a second rate cut this year. The BoC cut interest rates in January taking the market by surprise as it appeared proactive in the face of upcoming headwinds. Now with the rate at 0.75 percent there is still some room to cut. Governor Stephen Poloz is not expected to announce a rate cut at this meeting, but the market is pricing in one if not two rate cuts before the end of the year is both the U.S. and Canadian indicators have not recovered.

Greek Prime Minister Alexis Tsipras will be holding a parliamentary vote on the agreed reforms in order to unlock the bailout funds held by creditors. It is a bitter pill to swallow by Greek lawmakers in particular those of Mr. Tsipras’ party who were elected on an austerity rejection platform. Yet with financial institutions closed for two weeks there is the risk that the Greek economy could take even longer in recovering if it does not receive the bailout, no matter what the price.

Federal Reserve Chair Janet Yellen will testify before the House Financial Services Committee at 10 am EDT. Investors will be following her responses to gleam any clues about the timing of the much-awaited benchmark interest rate hike. Chair Yellen has tried to remain neutral, but still leaving the market some optimism on U.S. economic recovery. More of the same is expected to come out of her testimony on Wednesday before Congress and on Thursday before the Senate.

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