The Canadian dollar was broadly mixed versus the majors, gaining against the British pound, US dollar, and Australian dollar but lost against the New Zealand dollar, Japanese yen, euro, and Swiss franc. Canadian data was weak as Statistics Canada said that wholesale sales fell by 0.6 percent in April, marking the seventh straight month of contraction. Adding to this, inventories plunged 1.3 percent during the same period, suggesting that businesses do not foresee demand picking up anytime soon. The data doesn’t bode well for Friday’s release of Canadian retail sales, which are currently expected to have risen a slight 0.1 percent in April but may ultimately disappoint.
On Thursday, some key Canadian data will be released. According to the Bank of Canada’s last Monetary Policy Report in April, the Bank is open to quantitative easing (QE) and credit easing if nominal interest rates start to fall below zero. Indeed, the Bank stated that while they could cut rates to zero in theory, it would ultimately “eliminate the incentive for lenders and borrowers to transact in markets, especially in the repo market.” As a result, inflation reports will be key to gauging whether the Bank of Canada will go the route of QE. Headline CPI is projected to have risen 0.4 percent in May, leading the annual rate to fall negative for the first time since November 1994 at a rate of -0.2 percent. Meanwhile, core CPI is forecasted to have risen 0.1 percent during the month, leaving the annual rate down at 1.6 percent from 1.8 percent. All told, the Canadian dollar may only respond if CPI rises more than expected (CAD bullish), or if CPI contracts on a monthly bases and drags the annual rates of price growth much lower (CAD bearish).