USD/CAD Currency Pair 1-year chart

Little mention is made of Canada in the international press. This never ceases to amaze me, given that Canada is an important player in the global financial markets. It sports a higher GDP per capita than the US and it has a population approximately 10% the size of its southern neighbor. Canada has extensive natural resources, chief among them vast tracts of land. Canada goes toe-to-toe with the US in many economic metrics, including GDP per capita where Canada fares better. Regardless of the population size or land mass, Canada’s currency – the loonie – is determined by important metrics like retail sales, interest rates, inflation rates, PPI, Balance of Trade, Exports, Imports and so forth. In this vein, it is easier to generate comparisons between the countries and to understand what the USD/CAD pair is doing, or about to do.

Canadian Interest Rate

The BoC (Bank of Canada) decided against hiking interest rates on the 9 September 2015. The BoC maintained the current interest rate of 0.5% after dropping it marginally on the 1 July 2015. On Wednesday the 21 October 2015, the Bank of Canada’s Governing Council will make a decision about the interest rate. Consensus estimates are that the BoC will leave the interest rate unchanged at 0.5%. In much the same way, the Fed decided to leave the short-term interest rates at their 0.00% to 0.25% level in September. Given that the IMF (International Monetary Fund) cautioned central banks of developed countries against hiking rates, we can only assume that this applies to Canada too. The BoC interest rate decision will be announced on 21 October at 10:00AM and if forecasts prove correct, there will no noticeable change to the loonie.

My forecast: The BoC will follow the Fed and the BoE and not hike interest rates. This will not have a noticeable effect on the currency pair.

Retail Sales Canada

Retail sales have been a worry for many countries since global demand has come in for some tap lately. China recently released retail sales data and it confirms the slowdown in Chinese demand which dovetails with what’s happening in EM economies. Naturally, the knock-on effect for other countries is something to be concerned about. When retail sales decline year-on-year or month-on-month, speculative sentiment sours and currencies usually follow. In this vein, it is important to evaluate the CAD against the backdrop of actual retail sales figures vs forecast data.  Come Thursday 22 October, YoY and MoM retail sales figures will be released. These are the consensus estimates: