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Demand for Loonie Could Heat up after Victoria Day

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Demand for Loonie Could Heat up after Victoria Day

The Canadian dollar advanced Friday, surpassing 92 US cents in intraday trade amid mixed US data. With demand for the US dollar subdued, the loonie stands to gain considerable traction after the Victoria Day long weekend.

The loonie rose to a session high of 0.9205 US, advancing 0.15 percent. The loonie has advanced 0.25 percent against its US rival since Monday, extending its four-week gain to 0.9 percent.

In economic data, Canadians bought $7.9 billion in foreign securities in March, Statistics Canada reported today in Ottawa. This represented the largest outflow since November 2012.

Foreign holdings of Canadian securities declined $1.2 billion in March, the first monthly decline in 2014.

In US data, building permits in April surged to their highest level since 2008, as building intentions resumed after a subdued quarter. Groundbreaking increased 13.2 percent, offering hope the housing market could be stabilizing.

Looking ahead to next week, a steady stream of Canadian data could boost support for the loonie. Canada’s currency has benefited in recent months from stronger than forecast data, offering hope the economy was beginning to stabilize in the early part of the year. However, the April jobs report reminded the markets Canada’s economy still faces headwinds. The Canadian economy shed nearly 29,000 jobs last month, following a gain of nearly 43,000 the prior month. The jobless rate was unchanged at 6.9 percent.

On Tuesday Statistics Canada will report on wholesale sales for the month of March. Wholesale sales – a gauge of retail trade and consumption – advanced 1.1 percent in February, following a gain of 0.5 percent. Economists say sales at the wholesale level probably increased 0.5 percent in March.

Wednesday sees the release of March retail sales data, a key indicator of consumer spending and overall confidence. Retail revenues increased 0.5 percent in February, with gains reported in seven of the 11 retail sub-sectors. Excluding automobiles, retail sales rose 0.6 percent. Excluding sales at gas stations and motor vehicle dealers, sales increased 0.8 percent, official data showed.

Retail revenues advanced faster than forecast in February, but remained below last November’s peak. Consumer spending fell sharply at the end of last year as severe temperatures and heavy snowfall disrupted activity across the country.

StatsCan and the Bank of Canada will close out the week with reports on consumer price inflation for the month of April. Consumer inflation exceeded expectations in March, advancing 0.6 percent month-on-month and 1.5 percent annually. The so-called core measure, which excludes products such as food and energy, increased 0.3 percent month-on-month and 1.3 percent annually.

The recent sharp decline in US Treasury yields has undermined the already-troubled US dollar. The yield on 10-year Treasury notes declined to around 2.5 percent Thursday, the lowest level since October 2013.

The US dollar faces several pressures points, ranging from US recovery to monetary policy. Investors are still trying to determine the pace of recovery after the economy barely expanded in the first quarter. Dollar bulls hope improvements in economic data will put more pressure on the Federal Reserve to raise interest rates at the beginning of next year.

Next Wednesday the Fed will release the minutes of the latest Federal Open Market Committee policy meetings. The Fed decided last month to taper bond purchasing by another $10 billion.

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