CANADIAN DOLLAR BRACES FOR DATA; DXY PLUMBS 11-MONTH LOW
Following an active Thursday session, the global financial markets see limited action on Friday, with the Canadian dollar likely to draw headlines.
Statistics Canada will report on retail sales and consumer inflation at 12:30 GMT. Retail sales – a proxy for consumer spending – are forecast to rise 0.2% in May following a 0.8% uptick the previous month. Excluding automobiles, sales are expected to go unchanged.
The consumer price index (CPI) is expected to moderate even further in June, complicating the Bank of Canada’s rosy economic outlook. Annual CPI will likely slow to 1% in June from 1.3% the previous month, according to a median estimate of economists.
Compared to May, CPI is expected to drop 0.1%.
The BOC, which targets inflation at 2%, became only the second G7 nation last week to raise interest rates.
Higher interest rates have helped the Canadian dollar reach new highs against its southern counterpart, which has declined sharply in recent months on signs of weaker economic growth.
The US dollar index (DXY) declined on Thursday to its lowest level since August 2016, as investors continued to discount the US economic recovery.
At the same time, US equities are trading at or near record highs, with the Nasdaq Composite Index gaining in each of the last ten sessions. That’s the longest winning streak since early 2015.
The Nasdaq finished slightly higher on Thursday, even as the S&P 500 Index and Dow Jones Industrial Average traded mixed-to-lower.
Other data releases on Friday include UK public sector net borrowing (08:30 GMT) and Italian retail sales (09:00 GMT).
The Canadian dollar continues to push higher, with the USD/CAD falling below 1.26 for the first time since April 2016. The loonie is being pushed higher by a stronger domestic economy and, more recently, optimism concerning NAFTA negotiations. The North American Free Trade Agreement (NAFTA) has governed trade between Canada, the United States, and Mexico since the early 1990s.
The euro’s extended its bullish streak on Thursday, as prices topped 1.1600. Massive upside in the EUR/USD is being treated cautiously by analysts, who note that the pair may face overbought pressure in the short term. However, the long-term outlook remains favourable, with 1.1800 seen as the next major target.
The Nasdaq has closed in record territory in each of the past six sessions. US equities remain strongly bullish, with tech shares staging a dramatic relief recovery following last month’s tumult. Traders should keep an active eye on the CBOE VIX – Wall Street’s fear index – as it normally tracks inversely with the S&P 500. The fear index is currently near 24-year lows, which means stocks are well supported for the time being.