Foreign Currency Exchange

The strength of the loonie last week was relatively surprising however data has been positive and should help the GDP figures which until this week were looking gloomy. The week before last there was genuine concern regarding growth (following employment figures), so last week’s data has helped to ease some of those worries. In fact, the currency’s strength has been so prominent that it has survived a sustained drop in the key correlation commodities – crude oil below $115/barrel and gold under $800/oz. Having said that, data that showed the housing market was slowing was the one grey cloud in the sky for the CAD.

Key data out this coming week include the Wholesale Trade report and Retail Sales figures for June on Tuesday and Wednesday respectively, and CPI for July on Thursday.

The medium term outlook for Canada still looks sombre given some of the other data we have seen over the past month. However, the BoC has the flexibility to ease their monetary policy if required. It should therefore not be ruled out that they may look to use this option before the end of the year. This week’s CPI data should provide us with more of an idea on how realistic this is. If expectations of a 3.4 percent headline pace of annual price growth is realised, it would mark the highest level of inflation in over five-and-a-half years.

As for the GBP/CAD cross, conditions in both Canada and the UK are looking difficult, so it is expected that the cross may continue to trade sideways. The possibility of a rate cut in Canada before the end of the year could weigh on the loonie in the short term.