Oil prices continue to press higher but the Canadian dollar has not extended its rise. Canadian economic data has been weakening and as a result, traders are having a difficult time figuring out which factor will have a more lasting impact on the Canadian economy.
Yesterday Canadian wholesale sales dropped 2 percent and today, foreign demand for Canadian assets dropped CAD$3.83 billion as foreigners sold off C$5.4 billion worth of Canadian stocks. Although this could be related to the credit market crunch that hit the financial markets in August, the degree of the surprise leaves many traders wondering whether the Canadian economy will only get worse. This morning, the Bank of Canada released their monetary policy report which elaborated on the downward revisions to their growth and inflation forecasts. The bottom line is that they are worried about weaker US economic growth and the impact of a stronger than expected Canadian dollar. Consumer prices are due for release tomorrow – falling inflation pressures will continue to prevent the Canadian dollar from following oil prices higher. Meanwhile the sharp rise in gold prices has pushed the Australian and New Zealand dollars higher. New Zealand visitor arrivals and Australian import and export prices are due for release tonight. Inflation pressures in Australia are expected to be soft. Yesterday Canadian wholesale sales dropped 2 percent and today, foreign demand for Canadian assets dropped CAD$3.83 billion as foreigners sold off C$5.4 billion worth of Canadian stocks. Although this could be related to the credit market crunch that hit the financial markets in August, the degree of the surprise leaves many traders wondering whether the Canadian economy will only get worse. This morning, the Bank of Canada released their monetary policy report which elaborated on the downward revisions to their growth and inflation forecasts. The bottom line is that they are worried about weaker US economic growth and the impact of a stronger than expected Canadian dollar. Consumer prices are due for release tomorrow – falling inflation pressures will continue to prevent the Canadian dollar from following oil prices higher. Meanwhile the sharp rise in gold prices has pushed the Australian and New Zealand dollars higher. New Zealand visitor arrivals and Australian import and export prices are due for release tonight. Inflation pressures in Australia are expected to be soft.
Written by Kathy Lien, Chief Currency Strategist for DailyFX.com