The greenback rose against the Canadian dollar yesterday after Statistics Canada reported a sharp decline in wholesale sales in August. The loonie was battered by speculators despite a drop in crude oil inventories. Before the report was released, the market was anticipating an increase in crude inventories.
Statistics Canada stated that wholesale sales dropped 1.2% to $64.30 billion in August, mostly negating the 1.4% gain recorded in the previous month. Five of seven subsectors, which represent 85% of wholesale sales, posted a decline in wholesale sales.
Analysts had anticipated wholesale sales to increase by 0.3% on a m-o-m basis. Sub-sectors that contributed to most of August’s decline are machinery, equipment and supplies, personal and household goods, and the motor vehicle and motor vehicle parts and accessories. In volume terms wholesale sales fell 1.3% in August.
For the second consecutive month, the machinery, equipment, and supplies subsector reported a 2.6% decline to $13.30 billion. Similarly, the personal and household goods subsector posted a 3.4% decrease to $9.4 billion in August, following a 4.7% increase in July.
Wholesale inventories, after registering 11 successive monthly gains, recorded a 0.3% decline to $93.40 billion in August. Five of seven subsectors, representing 70% of total wholesale inventories, recorded a decline.
Inventories in the motor vehicle and motor vehicle parts and accessories subsector fell by 1.0% to $13.5 billion. It was the first decline in four months.
Likewise, for the first time since November 2018, wholesale inventories in the personal and household goods subsector registered a decline. The inventories dropped 0.4% to $16.10 billion.
In the US session yesterday, the data released by Energy Information Administration indicated an unexpected decline of 1.70 million barrels in the US crude oil inventories, compared with last week. The US crude oil inventories of 433.20 million barrels are near their five-year average.
Crude has dropped by 19% from the April high as the US-China trade war caused a drop in demand leading to an increase in global supplies. Earlier in October, the OPEC’s (Organization of Petroleum Exporting Countries) Secretary-General Mohammad Barkindo stated that the group would carry out whatever is necessary to avoid another slump in oil price.
However, Bob McNally, President of Rapidan Energy Group opined that the supply would increase sharply next year. McNally said, “If OPEC did nothing, global inventories would rise.”
Likewise, investment banking giant Goldman Sachs Group slashed its global oil demand growth outlook for 2020 to 1.25 million barrels a day, from 1.45 million. The weak outlook for crude oil and the decline in wholesale sales is expected to keep the Canadian dollar weak in the days ahead.
Technically, the USD/CAD pair is rising after receiving support at 1.3090 levels. The currency pair is trading above its 50-day moving average, while the stochastic oscillator is making new highs. Therefore, we can expect the USD/CAD pair to rally further in the days ahead.
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