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After spending much of Friday’s session smack bang in the middle of the G10 currency board, the loonie followed its peers in rallying against the US dollar.

Prior to the US PMI release, the Canadian dollar sat flat against the greenback as oil markets retraced some of their recent gains. To one side were the major G10 currencies such as the euro and Japanese yen, which found legs to claw back recently lost ground against the dollar, while to the other side  the commodity-linked currencies such as AUD which were trading lower on the day as commodity markets slid.

Canadian retail sales data did little to change the loonie’s fate.

The report had a bit for everyone, struggling to give the market direction and prompt a breakout in a sluggish day for USDCAD.  December’s retail sales data excluding auto sales rose by 0.5%, marginally above expectations, while November’s headline reading was revised upwards by 0.2 percentage points to 1.1%.

However, across the whole fourth quarter retail sales fell by 0.2% – highlighting the sluggish economic conditions in Q4 that the Bank of Canada is closely monitoring in Q1 for a rebound.

In volume terms, retail sales were unchanged in December, but stripping out the impact of auto and gas sales the number shows a more positive 1.0% growth vs 0.6% in November. A higher oil price failed to offset the fall in volume terms for gas sales. Taken as a whole, the release was mixed and USDCAD traded sideways through the data due to this.

The US PMI release was the market mover. Following a bumper Eurozone PMI release due to the impacts of longer delivery times resulting in a rise in the composite PMI reading due to a quirk in the technicalities, markets were looking at the US flash reading for February to measure the impact of the coronavirus.

Such a positive impact wasn’t to be seen on the headline figure as the composite reading printed a 76-month low along with the business activity sub-index.

The overall contraction was driven by a notable worsening of service sector performance, where output fell for the first time in four years, while new orders received by private sector firms fell for the first time since 2009.

Companies in both manufacturing and service sectors noted reluctance among clients to place new orders amid the global virus scare, although output expectations improved and reached a 10-month high.

The market soon began to re-price the impact of the coronavirus, whose economic impact was assumed to be concentrated on Asian economies and commodity markets.

However, Friday’s release shows the integrated nature of the global economy and adds to concerns of a slowing US economy in election year only days after government authorities downgraded their growth projections for 2020.

The dollar sold off across the board, allowing USDCAD to finally grab some direction in today’s trading session despite the decline in oil prices and mixed domestic data.


Chart: G10 sits in the green against the greenback after a coronavirus riddled PMI print


Chart: USDCAD finally chooses a direction post-PMI


Author: Simon Harvey, FX Market Analyst at Monex Canada. 



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