The Canadian dollar could add to its gains versus the greenback underpinned by higher than expected Canadian CPI of May rising to 3.7% y/y while the markets were waiting for 3.3% as the same at April and also the core figure excluding the food and energy has come up to 1.8% yearly from 1.6% in April while it was expected to get down to 1.5% yearly following rising of April Canadian raw materials prices index too by 6.8% yearly from 5.8% to show that there is growing pricing power in Canada currently can increase the pressure on the BOC to hike the interest again after keeping it unchanged at 1% since 8th September 2010 following the ECB without waiting for the Fed
Specially, as these growing inflation upside risks come accompanied with improving of the Canadian economic performance as we have seen recently the Canadian capacity utilization of the first quarter of this year surging to 79% from 76.8% in the last quarter of 2010 and this figure came also after Ivey PMI of May which rose significantly to 69.1 from 57.7 while the median forecast was referring to 60 to show strong improving of the Canadian industrial performance with declining of the Canadian unemployment rate to 7.4% in May from 7.6% in April.
The Canadian dollar has found also support versus the greenback which has been hit in the recent few days by improving of the markets risk appetite because of the markets optimism about solving the Greek debt problems in the short term with exposing it to default after the Greek government could gain confidence by 155 majority to 143 and this 155 majority has been repeated again yesterday on its austerities measures but this time against just 138 to avert default over the short term because of the lenders insistence on having an agreement in the Greek parliament on these required measures in the forms of cutting the governmental spending, hiking the taxes and going forward in privatization public assets in Greece by giving it the second part valued 12 billions euros from the EU and the IMF planned 110 billions euros package which has been prepared nearly a year ago for supporting it reducing its exposure to the bonds markets directly.
This improving of the investors' risks could also help the oil prices to rebound supporting back the Canadian dollar as a commodities currency after it had been under pressure by the EIA announcement of releasing 60 million oil barrels next month to offset the shortage by the riots in Libya.
That's beside significant decreasing of US oil inventories to the week ending on 24th of June by 4.4 m barrels from shortage by 1.5 m a week earlier while the markets were waiting for decreasing by just 1.7 and also its gasoline inventories which looked negatively impacted by the summer driving season demand has got down by 1.4 m barrels while the market was waiting for rising by 0.77 after decreasing a week earlier by 1.5 m barrels to strengthen the oil prices and the Canadian dollar which dragged down the greenback from 0.991 to be traded below 0.97 reaching 0.9623 breaking 09669 and 0.964 supporting levels and by God's will, further downward pressure on this pair can lead to test 0.9512 again then 0.9444 which has been reached on the second of last May by the turmoil which has hit the commodities markets after the labor holidays and caused strong profit taken waves by the investors while its next resistance is now at 0.991 and the breaking of it can lead to the parity level which can be followed by another resistance at 1.006 then 1.0379 over a longer range.
Kind Regards
FX Market Strategist
Walid Salah El Din
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