USD/CAD Rises Amid Slumping Canadian Retail Sales, Falling Energy Prices

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The Canadian dollar is weakening against some of its primary currency rivals, including the US dollar. The loonie is slumping on disappointing retail sales data, as well as falling energy commodities. But with Canada experiencing a modest uptick in the number of new coronavirus infections, will the economy recovery hit a bump in the road? The loonie’s second-half future might depend on how well the greenback does.

According to Statistics Canada, retail sales tumbled 2.1% in May, which was slightly higher than the median estimate of -3%. This was also an improvement from the 5.7% slide in April. The biggest declines in retail sales trade were concentrated in building materials, garden equipment, motor vehicles, and apparel.

On an annualized basis, retail sales advanced 24.6% in May, down from the 57.2% spike in the previous month.

In other economic data, new housing prices added 0.6% last month, down from the 1.4% pop in May. New home prices rose 11.9% year-over-year.

The energy market is taking a breather from its substantial recovery this week. September West Texas Intermediate (WTI) crude oil futures slipped $0.24, or 0.33%, to $71.67 per barrel on the New York Mercantile Exchange. September natural gas futures picked up $0.035, or 0.87%, to $4.039 per million British thermal units (btu).

Since Canada maintains a current account deficit, the economy depends on exports for growth. Oil and gas remain the country’s top shipments, so any change in price can impact both the loonie and the broader economy.

Meanwhile, moving forward, it is believed that the Bank of Canada (BoC) will be monitoring these key metrics before moving on raising interest rates and ending its quantitative easing program: employment, real estate, and inflation.

The central bank has noted that it will pull the trigger on a rate hike next year.

The Canadian bond market is mixed to finish the trading week, with the benchmark 10-year yield up 0.003% to 1.207%. The one-year bill shed 0.07% to 0.235%, while the 30-year bond was flat at 1.779%.

The USD/CAD currency pair rose 0.24% to 1.2595, from an opening of 1.2562, at 14:30 GMT on Friday. The EUR/CAD advanced 0.14% to 1.4811, from an opening of 1.4788.

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