The Canadian dollar traded lower on Wednesday as voters in the UK prepared for the UK EU referendum and oil prices dropped after inventories in the U.S. did not fall as much as expected. The CAD had recovered some ground after the tide of Brexit seemed to swing to favour the Remain side and risk was back on in the markets. Despite risk aversion being dialled down, there is a significant lack of participation by investors who prefer to wait on the sidelines until after the results from Brexit put an end to months of speculation on the future of the UK economy and its impact on global markets.
Canadian economic indicators have slowed down and the impact of the Alberta wildfires is still not taken into account. The Bank of Canada (BoC) was proactive in 2015 with two rates cuts and has opted to wait for the effects of the stimulus package announced in March by the Federal government before a monetary policy decision is to be made. The central bank has not discounted using unconventional tools such as negative rates if the economy needs additional easing. The Canadian benchmark rate stands at 0.50 percent, a record low.
Canadian retail sales gave the loonie a boost in early Wednesday trading. Both the core and headline sales data came in above forecasts. The core retail sales (excluding auto) grew by 1.3 percent in April. Retail sales jumped 0.9 percent and hit a record of $44.28 billion. Car sales fell in April, but rises in gasoline sales and other subsectors drove the gain for the third rise in four months for Canadian retail sales.The USD/CAD gained 0.23 percent in the last 24 hours. The pair is trading at 1.2830 as the market is getting ready for the Brexit vote on Thursday and the announcement of results on early Friday. The CAD depreciated as the price of energy tumbled after U.S. inventories were higher than expected with only a 900,000 barrels fall instead of the forecast of 1.6 million barrels. The lack of evidence of a continued surge in demand put downward pressure on the price as the amount of crude in the market continues to rise as producers hit record output levels.The price of West Texas fell 1.15 percent in the last 24 hours. Crude tumbled after the release of the U.S. oil inventories showed a lower than expected fall in barrels. Energy is not exempt from Brexit volatility. The oil glut appears to be alive and well despite comments from Saudi Arabia’s Energy Minister Khalid Al-Falih in an interview during his visit to the U.S.
The Canadian dollar will be range bound awaiting the final outcome of the months long UK EU referendum campaigns. The Remain side appear to be ahead slightly in polls, and in gambling polls the lead could be as high as 70 percent of the vote.
CAD events to watch this week:
Thursday, June 23
ALL DAY UK EU Referendum
8:30am USD Unemployment Claims
Friday, June 24
UK Referendum Results
4:00am EUR German Ifo Business Climate
8:30am USD Core Durable Goods Orders m/m
*All times EDT
For a complete list of scheduled events in the forex market visit the MarketPulse Economic Calendar
About Alfonso Esparza
Senior Currency Strategist, OANDA, Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, he established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. 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. Follow on Twitterand on his Google+ profile.