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Weekly Outlook: International Transactions And CPI Could Weigh On Loonie

By DailyFX Research Team
14 April 2006 19:22 GMT

Wednesday’s releases are loaded with the first real stretch of market moving data.  Slated for the day are international securities transactions for February and leading indicators for last month, which are expected to offer conflicting signs for traders on each side of the market.  The composite index is expected to grow 0.4% in February, over the previous month’s 0.2% move higher, as retail sales, the housing sector and equities lent their weight.   Despite the optimism this indicator may spark for loonie bulls, an expected contraction in the country’s net foreign investment surplus may take precedence.  After the loonie stalled against the dollar last week on the plunge in goods exports and subsequent manufacturing shipments, a drop in foreign investment into Canadian assets could exacerbate fears that trade-led growth may be fading.  Thursday’s release of consumer goods inflation may not help loonie bulls’ position.  The commonly followed price growth gauge is expected to contract for the second month in March to a 2.1%-pace from 2.8% in January.  Over the period, gasoline prices began to retrace some of the previous month’s strong declines; however lower prices from companies have been able to conveniently offset this rise.  The extent to which retailers and wholesalers have been keeping their price increases restrained will become more fully understood with Friday’s release of sales levels for the month of February for each.  Purchases from wholesales are expected to fall 0.2% while those at retailers are expected to rise a meager 0.1%.  As with their US counterparts, both Canadian retailers and wholesalers endured a store visits as consumers stayed at home with temperatures returned to normal.

Loonie bulls seemed to find the floor to their 325-pip rally that began on April 4th last week.  After four days of hard rallying, the currency showed its first signs of indecision on Monday’s session, the release for the day was positive.  For the session, an indicator of housing starts reported a rise to 252,300 for the month of March, marking the best first quarter for breaking ground since 1987.  Following up on this indicator’s heals was the new housing prices index for February.  The average price advanced 0.7% to beat out expectations of 0.5% growth.   Taken together, these two indicators revitalized confidence in the housing sector, which beforehand was believed to be out of steam.  On the release of the second indicator on Tuesday, the Canadian dollar pushed to 1.1425 against the dollar, its highest level in a month.  From there price action turned to a choppy decline.  Come Wednesday, the release of the trade balance figure proved expectations were wrong, but sentiment right.  Canada’s surplus with the rest of the world actually grew to C$6.3 billion in February against expectations of a decline in the gap to C$6.0 billion.  However, the market-worthiness of the indicator actually lied in the component calculations.  While the surplus did increase for the period, exports had actually fallen 3.5% with falling demand and prices for energy products.  Following the release, the loonie dropped 65 pips against the US dollar and capped its loses for the day at 1.1490.   The biggest decline for the week came in wake of the week’s final indicator, manufacturing shipments for February.   Shipments from the already fragile manufacturing sector were already looking to have a poor release after the reported drop in exports.  Actual shipments were far worse than the market expected, with a 2.2% drop in pressured by an expensive currency and falling demand for crude and lumber.  An 85-pip decline was the response loonie traders issued to the poor result with price action holding around 1.1505 through to Friday afternoon.

 

CAD 04-14-06

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14 April 2006 19:22 GMT