The Canadian dollar declined against the Japanese yen after Statistics Canada reported worse than anticipated contraction in building permits in February. The decline was also aided by an increase in inventories of US crude oil, which is one of the primary export revenue earners for Canada. The loonie’s decline was also aided by Japanese economic data indicating an unexpected rise in core machinery orders in February. In the past 24 hours, the CAD/JPY pair has dropped from a high of 77.84 to a low of 77.23.
The Canada Mortgage and Housing Corporation (CMHC) reported a decline in the housing starts to 195,174 units in March, down 7.3% from 210,574 units in February. The SAAR (seasonally adjusted annual rates) of urban starts are fell by 7.3% to 182,553 units in March. Multiple urban starts declined 13.4% to 124,073 units in March, while single-detached urban starts rose 8.8% to 58,480 units. Economists had anticipated a figure of 173,000.
Bob Dugan, CMHC’s chief economist, detailed the manner in which housing starts declined last month: “The national trend in housing starts declined in March, likely indicating that the COVID-19 pandemic has begun to impact residential construction activity. Activity in Toronto and Montréal trended lower, reflecting broader declines in their respective provinces. While Vancouver registered an up-tick, it was not sufficient to offset an overall decline in British Columbia. Activity trended lower in the Atlantic region, but conditions were mixed in the Prairies, as lower activity in Saskatchewan was offset by higher activity in Alberta and Manitoba.”
The statistical organization also reported that building permits declined 7.3% in February, from a 3.3% increase in the earlier month. Economists had anticipated building permits to decline by 4%.
In the US, the Energy Information Administration reported an increase in inventories by 15.20 million barrels at the end of last week. In comparison, the previous week recorded an increase of 13.8 million barrels in inventories. Economists had anticipated inventories to increase by a mere 9.80 million barrels.
The US crude oil refinery inputs averaged 13.60 million barrels per day in the week ended April 3rd, 2020, a decrease of 1.3 million barrels per day below the earlier week’s average. Refineries were operating at 75.6% capacity. Last week, gasoline production declined to 5.8 million barrels per day. While WTI crude rose $0.68 to close at $25.77, Brent crude gained $0.43 to end the trading day at $33.27 per barrel.
In Japan, the Cabinet Office reported an unexpected 2.3% m-o-m increase in core machinery orders in February, compared with a 2.9% increase in the earlier month. Economists anticipated core machinery orders to decline by 2.9% for the reported period.
Similarly, the Ministry of Finance reported a current account surplus of ¥2.38 trillion in February, from ¥1.63 trillion in the earlier month. Economists had anticipated a current account surplus of ¥2.02 trillion.
The weak housing data and a sharp increase in crude oil inventories are anticipated to keep the Canadian dollar range-bound with bearish bias in the short-term.
The historical price chart indicates that the CAD/JPY pair is declining after failing to cross the resistance level of 78.20. The next support is anticipated only near 76.50. Additionally, the stochastic indicator is in the bearish zone. Therefore, we are expecting the currency pair to decline in the short-term.
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