The U.S. dollar declined against the Canadian dollar yesterday following the release of unsatisfactory House Price Index data and a sharp increase in the crude oil inventories. Existing home sales data reflected a sharp rebound in June, but missed economists’ estimates. The steep rise in Canada’s consumer price inflation in June also aided the loonie’s rally against the greenback. In the past 24 hours, the USD/CAD pair fell from a high of 1.3480 to a low of 1.3420.
According to Statistics Canada, the consumer price index (CPI) increased 0.8% m-o-m in June, following a 0.3% growth in the earlier month. Economists had anticipated the CPI to inch up to 0.4%. Excluding volatile goods such as food, energy, and automobile, core CPI has increased 0.4% m-o-m in June, following a decline of 0.1% in the prior month.
On a y-o-y basis, CPI grew 0.7% in June, following a decline of 0.4% in May. Excluding gasoline, CPI increased 1.2% y-o-y. On a seasonally adjusted basis, CPI rose by 1% m-o-m in June. Excluding food and energy, seasonally adjusted CPI increased 0.2%.
The y-o-y rise in the CPI for June increased at the quickest rate since March 2011.
Five of the eight key components recorded an increase in prices on a y-o-y basis. Food and shelter prices contributed the highest share in the CPI increase. On a y-o-y basis, prices for goods, including energy prices, dropped by less than earlier months.
On a y-o-y basis, prices for services increased 1.3% in June, matching the previous month’s increase. On the contrary, prices for goods dropped 0.2% in June, albeit at a slower pace than in May, when it recorded a 2.3% decrease. This enabled the CPI to rebound to positive territory. Other sectors which contributed to an increase in the CPI are energy, clothing and footwear, durable and semi-durable goods, and passenger vehicles.
Gasoline prices declined 15.7% y-o-y in June, compared with 29.8% drop in May. Meat prices, however, increased 8.1% y-o-y in June, with beef prices playing a major role in the rise. Rental costs rose by 0.6% in June, following a 0.8% drop in May. Likewise, electricity costs increased 17.2% m-o-m in Ontario, the steepest monthly rise since May 2003.
In the U.S., according to the data provided by the Federal Housing Finance Agency (FHFA), House Price Index (HPI) fell 0.3% m-o-m in May, compared with a 0.1% increase in April and missed the Consensus estimate of 0.3% increase. Between May 2019 and May 2020, house prices increased 4.9%. The earlier reported 0.2% increase for April was downwardly altered to 0.1%.
Commenting on the data, Dr. Lynn Fisher, Deputy Director of the Division of Research and Statistics at FHFA, said, “U.S. house prices posted a small decrease in May compared to April but remained 4.9 percent higher than a year ago. The May HPI results are based on contracts for sale signed in late March and throughout April, which was a period when many states announced stay-at-home orders. [….] Based on the rebound in mortgage applications for home purchases and pending home sales in May, we expect the number of transactions increased somewhat in June.”
In a separate news release, the U.S. National Association of Realtors (NAR) stated that existing home sales increased to 4.72 million units in June, from 3.91 million units in May, but missed the 4.77 million units anticipated by economists.
The data indicates a rebound in existing home sales at a record rate in June, following three consecutive months of decline in sales caused by the continuing pandemic.
Total existing-home sales, including townhomes, single-family homes, condominiums, and co-ops, surged 20.7% m-o-m to an annual rate of 4.72 million units in June 2020. On a y-o-y basis, sales declined 11.3% from 5.32 million units in June 2019.
Commenting on the rebound, Lawrence Yun, NAR’s chief economist, said, “The sales recovery is strong, as buyers were eager to purchase homes and properties that they had been eyeing during the shutdown. This revitalization looks to be sustainable for many months ahead as long as mortgage rates remain low and job gains continue.”
Notably, the median existing-home price increased 3.5% y-o-y to $295,300 in June. Likewise, total housing inventory marginally rose by 1.3% m-o-m to 1.57 million units in May. However, on a y-o-y basis, inventory is still down 18.2% (1.92 million units). Interestingly, first-time buyers accounted for 35% of sales in June, compared with 34% in May. All-cash sales represented 16% of total transactions last month, a decrease from 17% in May.
According to the data provided by the Energy Information Administration (EIA), the U.S. crude inventories rose by 4.90 million barrels in the week ended July 18, compared with a decline of 7.50 million barrels in the previous week and worse than the 2.1 million barrel decrease anticipated by commodity analysts. The U.S. strategic reserves now stand at 536.60 million barrels, 19% above the five-year average for July.
Poor economic data and an increase in crude oil inventories are expected to keep the USD/CAD pair range-bound with a slight bearish bias in the near-term.
Technically, the USD/CAD pair is declining after failing to cross the resistance level of 1.3670. The next support is anticipated only near 1.3210. Additionally, the currency pair is trading below its 50-day moving average, while the stochastic oscillator is in the bearish zone. Therefore, we are anticipating the currency pair to move down further in the days ahead.
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.
