The picture for the Canadian dollar is worsening as it continues to carve out fresh 14-month lows.
The US dollar is up another 33 pips today against the loonie, touching 1.4177. This will be the third consecutive week of gains for the pair and comes with oil prices falling in a post-war rout. WTI crude is down nearly $8 this week and trading back to early-March levels as the crude market prices in a rapid resumption of flows through the Strait of Hormuz.
On the domestic side, today’s weak retail sales number highlights a consumer that was hit hard by the spike in gasoline prices. Overall sales rose 0.5% but it was all driven by gasoline. Excluding gasoline and autos, sales fell 0.7% led by lower sales at food and beverage retailers. The 2.0% decline in that category is an indicator of a squeeze on discretionary spenders.
Canadian growth has struggled amidst a reversal in population growth following a post-covid boom. The population of Canada declined 0.45% in Q1 as temporary visas and student visas weren’t renewed. GDP declined in both Q4 and Q1, triggering a technical recession.
The indications look better for Q2 as April numbers were strong but that’s colliding with a weaker consumer and ongoing USMCA uncertainty. Trump is attempting to renegotiate the deal and extract further concessions from Canada. Given Trump’s penchant for brinksmanship, the headlines are likely to get worse before they get better.
That dynamic and lower commodity prices has made it difficult for capital to find a home in Canada but if it’s cleared up by year end, I would expect a solid reversal in the currency.
The broader rise in the US dollar this week also can’t be ignored. The hawkish press conference and statement from new Fed chairman Kevin Warsh has lifted the dollar and has the market pricing in 38 bps of hikes this year from 21 bps beforehand.
Technically, there isn’t much standing in the way of a return to the mid-140s as the break of the November highs has been clean and with some nice follow through.
On thing to watch next week is the Monday release of Canadian CPI for May following a +2.8% reading in April.
This article was written by Adam Button at investinglive.com.
