The Japanese yen rallied against the Canadian dollar in the Asian session yesterday following the report of better-than-anticipated retail sales data for July. However, in the US session, Statistics Canada published splendid current account surplus data for the second quarter. Furthermore, the firming up of crude prices on news of production shut-in at the US Gulf Coast also aided the loonie to rally against the yen. Overall, in the last 24 hours, the CAD/JPY pair had rallied from a low of 86.89 to a high of 87.40.
According to the data published by the Ministry of Economy, Trade and Industry, retail sales increased 2.4% y-o-y in July, following a 0.1% growth in the earlier month and greater than the 2.1% rise anticipated by economists.
The reported reading reflects the fifth successive month of growth, surpassing forecasts as the consumer sector rebounded, even though the COVID-19 resurgence is eclipsing the spending outlook.
The trade ministry also revealed robust demand for clothing, cars, food, and general items. Notably, small vendors and pharmacy shops recorded a sharp increase in sales on a y-o-y basis.
On an m-o-m basis, retail sales rose by 1.1% in July as consumption growth, triggered by the Tokyo Olympics, continued in the reported period.
The government tightened emergency restrictions following the increase in Delta variant cases in July. Economists and authorities are afraid that consumer spending may be negatively impacted by the resurgence of COVID-19 infections.
In the US session, data published by Statistics Canada indicated that the current account surplus doubled to C$3.581 billion in the June quarter, from C$1.815 billion in the March quarter and more than double the C$1.50 billion current account surplus anticipated by economists.
Notably, Canada had recorded nonstop current account deficits from Q4, 2008 until last year’s end. The 2Q 2021 surplus reflects a positive balance in goods and services trade and also an increase in investment income.
Furthermore, the goods and services trade balance recorded the second successive surplus of $1.80 billion in 2Q 2021. Exports of goods rose by $0.90 billion to $153.20 billion in 2Q21, driven by higher prices. Forestry products and building and packaging materials led the increase by recording a growth of C$2 billion, primarily on a steep rise in prices. Likewise, energy products posted an increase of $1.60 billion, mainly due to higher prices for crude petroleum.
Goods imports grew by C$0.50 billion to C$151.60 billion in 2Q 2021. Motor vehicles and parts, which were also affected by the scarcity of semiconductor chips, fell by C$4.60 billion.
Nevertheless, it was more than negated by an increase in the imports of other important products, specifically basic and industrial chemical, rubber and plastic products, which posted an increase of C$1.60 billion. Also, metal and non-metallic mineral products posted a rise of C$1.50 billion, aided by an increase in prices and volumes.
Geographically, goods surplus with the US increased C$2.70 billion in the June quarter. The deficit with countries, devoid of the US, widened by C$2.20 billion, primarily due to a decrease in surplus with the UK. On the contrary, the deficit with China narrowed by C$1.30 billion.
The trade-in services surplus declined by C$302 million to C$136 million, but recorded a positive balance for the fifth successive quarter.
Likewise, the goods balance reported a second successive surplus, while the services balance stood on the positive territory, a remarkable scenario considering the resurgence in COVID-19 infections, which had negatively impacted travel-related payments.
In the meanwhile, the passing of hurricane Ida has forced the shutdown of 95% of oil production in the US portion of the Gulf of Mexico. Specifically, as per the Bureau of Safety and Environmental Enforcement (BSEE) report, about 1.74 million barrels of crude and 2.09 billion cubic feet of natural gas (93.75%) have been taken out of daily production.
Overall, as per a Bloomberg report, the shut-in refining capacity aggregated to 2.11 million bpd (~12 % of the US total production). The crude price firmed on the news, with the Brent trading at $72.75 per barrel.
The strong current account data and firming up of crude prices are expected to keep the Canadian dollar slightly bullish against the yen in the short term.
The historical price chart shows that the CAD/JPY pair is rising after testing the support at 86.90. The following resistance is expected only near 88.20. Additionally, the stochastic oscillator is in the bullish region, while the currency pair is trading above its 50-day moving average. We are anticipating the CAD/JPY pair to stay in an uptrend in the short term.
Disclaimer: Any financial trading analysis offered here is our opinion and is not intended as advice or direction for investors. We cannot guarantee the success of any trades made as a consequence of this article, and we encourage traders to incorporate a strong money management strategy to limit losses when they enter the markets. Please use this article as part of your own research before formulating strategies prior to trading.
