US CPI Beats Forecast, Canadian Manufacturing Sales Miss
Published September 16, 2016
USDCAD is testing above the 1.3200 handle again this morning on a combination of risk aversion across financial markets, lower oil prices, and a relatively strong CPI report from the US
The only major Canadian data release this week was disappointing as Manufacturing Sales for July rose 0.1% over June compared with expectations for a 1.0% increase
This contrasts with CPI data from the US that was stronger than expected
On a monthly basis, prices rose 0.2% in August compared with forecasts for a 0.1% rise
Annualized, this translated into a 2.3% increase which beat the 2.2% expected
However, diving into the numbers reveals a few pieces of data that may give markets something to think about…
Real weekly earnings fell -0.4% during August which helps to explain why yesterday's Retail Sales numbers disappointed
The larger policy implications of rising inflation and falling earnings are obviously not that good as it puts the Fed in a difficult place; can they raise rates when earnings are falling? Would that exacerbate larger structural issues related to what is expected to be a period of prolonged slow growth?
Oil prices are 1% lower to $43.10 for WTI this morning, likely influenced by reports that exports from Iran have risen to five year highs near pre-sanction levels; this will surely catch the attention of the Saudis and likely prolong the price war for market share
USDCAD should see some stiff resistance near the summer highs of 1.3255; a break and close above there on a daily or weekly level would increase the probability for a test of the 1.35/1.36 region
Charts: (1) USDCAD formed a base at 1.2825 and now set for test of range highs circa 1.3255. (2) Fed Interest Rate Hike Probability. (3) US-CA 2YR Yield Spread. (4) Economic Calendar.