This article was written by Jarratt Davis. Jarratt is a professional trader and educator and owner of www.jarrattdavis.com.
With strong economic data of late and a reasonably well supported oil price – on the prospects of another oil meeting in May – the Canadian dollar has seen strength in April. The currency rallied over 600 pips against both the yen and the buck during the month.
Inflation measures for March, released April 22, smashed estimates with BoC Core CPI rising 0.7% m/m, versus an expected rise of 0.3%. That brings year-over-year core inflation up to 2.1% from a prior of 1.9% in February. Headline inflation also impressed at 0.6% m/m and 1.3% y/y. The satisfactory situation for Canadian inflation means that there is, at this stage, no chance thatthe BoC will need to cut rates this year. The CAD should remain relatively well supported for the time being, notwithstanding fluctuations in oil.
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On the same day as the CPI release, we saw Retail Sales for February beat estimates with the Ex-Autos figure printing 0.2% m/m versus an consensus estimate of -0.5%. Headline Retail Sales rose 0.4%. The two positive data sets, CPI and Retail Sales, helped boost CAD across the board with CADJPY booming nearly 250 pips on the day.
The April 13 BOC statement saw the bank hold its neutral stance, however it was upbeat overall with the bank upgrading its domestic economic forecasts and generally expressing an optimistic outlook regarding the new federal fiscal stimulus measures. The BoC stated that the new federal budget had a “notable positive impact on GDP” and that the new measures which include tax and transfer benefits would add 0.5% to GDP in 2016.
Released on April 8, Employment for March was excellent; the Unemployment Rate ticked back down to 7.1%, a 0.2% improvement from February’s reading. And 40,600 jobs were added, well above the 10,000 expected. At the same time WTI extended on its $5 rally which helped boost the CAD across the board.
The Canadian dollar is a weak bullish currency at present as the Bank of Canada remains satisfied with economic developments and has signalled no bias for further easing. Core inflation is close to target and oil prices continuing to move higher bodes well for the resource-exporting nation. Further upside in WTI will make the CAD a buy on pullbacks against weaker currencies.