Canadian Dollar Takes A Hit After Disappointing Wholesale Trade Data
The Canadian Dollar's performance in May, especially against the US dollar, was rather underwhelming due to the release of disappointing Canadian wholesale trade data.
The less than appealing wholesale data led to a 1.8% decline in the Canadian Dollar (CAD) against the US dollar (USD). This week kicked off with the CAD sliding lower on Monday against the USD after hitting a nine-month high towards the end of last week. Canada’s wholesale data reportedly fell by 1.8% in May compared to the wholesale figures achieved in April.
The weaker Canadian wholesale trade data in May is mainly attributed to weaker May sales in key sectors such as automobile sales, and vehicle parts, as well as accessories. Statistics Canada also revealed that analysts expected a 0.5% increase in May, which means the results undershot by a significant margin.
The cause of the underwhelming wholesale trade data
The Canadian wholesale trade data represents the second economic report that came in weaker than anticipated. Data published on Friday revealed that retail sales in the country were lower than forecasted.
Despite the unappealing data, the Canadian economy has demonstrated signs of a recovery in Q2 compared to its subdued performance at the start of 2019. This slow performance at the beginning of the year is attributed to the uncertainty that has prevailed in global economic trade.
“With weaker data potentially creating more expectation in the market for easier policy from the Bank of Canada, I think it’s playing as a headwind to the CAD today” stated Michael Greenberg who works at Franklin Templeton Multi-Asset solutions as a portfolio manager.
The likelihood of interest rate cuts in Canada has increased
There is still a lot of uncertainty in the market and the need for investors to exercise caution. One of the key factors that affect investor mood is government policy, particularly interest rates. The Bank of Canada recently made an interest rate decision a few days ago, thus increasing the chances of interest rate cuts from around 20% to more than 50%.
Meanwhile, the BOC continues to maintain its benchmark interest rate at 1.75%. There is no doubt that the weak wholesale trade data, interest rate cut speculation and concerns raised by trade wars have so far resulted in further economic tensions.
Despite the negative wholesale data and interest rate cut concerns, there has been some upside in the price of oil. This is good news for Canada because it is one of the countries that export oil. The oil price surge is most likely due to concerns about potential supply disruption, especially from the Middle East on account of tensions caused by Iran's decision to seize a British oil carrier.
The prices of government bond yields in Canada also demonstrated a strong performance with as indicated on the yield curve to about 1.431% yield after rising by 6.5 cents CAD on the two-year CA2YT=RR. There was also a 3.0 basis point increase indifference the US two-year yield bond and that of its Canadian counterpart.