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Canadian dollar under pressure as sentiment remains bearish

H.S. Borji
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The Canadian dollar was weaker against its US counterpart Monday, as escalating violence in Iraq weighed on the stock and commodity markets.

The loonie was trading at 0.9208, declining 0.02 percent. Canada’s currency hit an intraday low of 0.9190 ahead of US data releases.

The US dollar index, a broad performance gauge of the US dollar’s performance versus six commonly traded peers, was down 0.04 percent at 80.55.

Energy futures were relatively unchanged Monday morning as investors shifted their attention to Iraq. West Texas Intermediate, the US benchmark, advanced $0.06 to $106.97 a barrel. Brent for August delivery was relatively unchanged at $112.48 a barrel.

As a major producer of oil and other natural resources, Canada’s prospects are closely tied to the commodity markets. As the US government considers intervention in Iraq to halt the campaign of the Islamic State of Iraq and the Levant, the price of crude hangs in the balance.

Direct military intervention by the United States and its allies suggests the world’s largest economy is willing to prevent a supply shock in crude, which could keep crude prices in check. Unfortunately, intervention of any sort will likely lead to further instability in Iraq, which threatens to undermine the country’s already vulnerable security situation.

In economic data, Canadian international securities transactions surged in April, Statistics Canada reported today in Ottawa. Foreign portfolio investment in Canadian securities increased from -$1.23 billion to $10.13 billion. Economists forecast a rise to $4.27 billion.

Statistics Canada will report on wholesale sales Wednesday. Wholesale sales are forecast to advance 0.5 percent in April.

StatsCan will report on retail sales Friday. Retail revenues are forecast to grow 0.5 percent in April, following a slight drop of 0.1 percent the prior month.

StatsCan and the Bank of Canada will report on consumer inflation Friday. Canadian inflation reached 2 percent in April for the first time in two years. However, the BOC downplayed the rise in inflation at its June rate decision, signalling that core prices are still well below the central bank’s target threshold.

In US data, net long-term Treasury International Capital unexpectedly declined in April, the Treasury Department reported today. Net long-term TIC flows declined $24.2 billion. Economists forecast TIC flows to rise $41.3 billion.

US industrial production rose faster than forecast in May, driven by gains in manufacturing and mining, the Board of Governors of the Federal Reserve reported today. Industrial production increased 0.6 percent, following a revised drop of 0.3 percent in April.

On Tuesday the Commerce Department will release inflation data for May. US consumer prices are forecast to rise 2 percent year-on-year.

The biggest event of the week will come Wednesday when the Federal Reserve releases its latest rate statement and economic projections. The Fed is expected to continue winding down the pace of record stimulus while keeping interest rates at all-time lows.

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