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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.