The Canadian dollar extended its losses against the US counterpart on Wednesday as soaring inflation and plummeting energy prices weighed on the loonie. The currency has struggled to make any gains against the greenback, falling more than 5% over the last 12 months. So, can the loonie recover in the second half of 2022?
According to Statistics Canada, the annual inflation rate advanced to 7.7% in May, the highest reading since January 1983. The market had penciled in a gain of 7.4%. Everything was up across the board: transportation soared 14.6%, gasoline prices spiked 48%, groceries increased 9.7%, and shelter costs picked up 7.4%.
On a month-over-month basis, the consumer price index rose 1.4% in May, topping the median estimate of 1%.
The core inflation rate, which removes the volatile food and energy sectors, advanced 6.1% year-over-year in May, higher than the 5.9% economists had expected. The monthly core CPI rose 0.8%.
In other economic data, retail sales rose at a higher-than-expected pace of 0.9% in April. The market had anticipated a gain of 0.8%. Year-over-year, retail sales surged 9.2%.
On the housing front, new housing prices eased to an annualized rate of 8.4% in May. But home prices climbed 0.5% month-over-month in May.
Falling energy commodities weighed on the loonie as July West Texas Intermediate (WTI) crude oil futures cratered $3.08, or 2.9%, to $103.11 per barrel. July natural gas futures tumbled $0.097, or 1.41%, to $6.761 per million British thermal units (Btu).
Since Canada maintains a current account deficit, exports are crucial for economic growth. With oil and gas still the country’s top shipments, any significant price change can have an impact on the loonie and the broader economy.
The Canadian bond market was mostly in the red on Wednesday, with the benchmark 10-year yield down 7.9 basis points to 3.421%. The one-year bill was unchanged at 3.24%, while the 30-year bond dropped 5.5 basis points to 3.348%.
The USD/CAD currency pair rose 0.12% to 1.2963, from an opening of 1.2947, in overnight trading. The EUR/CAD advanced 0.17% to 1.3705, from an opening of 1.3682, in overnight trading.