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All eyes on Canadian retail sales

It was quiet overnight session but the US dollar remains offered following yesterday’s release of the minutes from the most recent Fed policy meeting. Voting members expressed caution on everything from wages to commodities and China and the greenback was sold as it now appears unlikely the Fed hikes rates at next month’s meeting. Economic data was sparse in both the Asian and European sessions as markets took their cue from the FOMC minutes released just before yesterday’s North American close. Sterling lost a bit of luster on worse than expected retail sales but otherwise remains tightly range bound between the euro and dollar. The euro gained further ground on the dollar one day after German politicians approved a 3rdGreek bailout program. A slew of manufacturing and services PMI results closes out the week for the Eurozone tomorrow morning.

There was no real Asian data to speak of as equities remain a mixed bag following Monday’s sharp 6% selloff in China. The last twenty four hours has been about the Fed’s minutes and the market’s reaction to those minutes. As previously stated, Ms. Yellen and company expressed new caution on the state of the global economy and its impact on America’s prospects for higher interest rates. The two most important takeaways concerned China and domestic inflation. Concerning China, the Fed noted “a material slowdown in Chinese economic activity could pose risks to the U.S. economic outlook,” which is something new for American policymakers. Chinese authorities’ actions to devalue their currency puts more pressure on the Fed as well, also noted in the minutes. Concerning inflation, the Fed “continued to see downside risks to inflation from the possibility of further”¦ declines in commodity prices,” which also touched the greenback a little, notably against the euro and yen. The Fed also noted some concerns in the labor market, a new wrinkle for one sector of the economy that had been previously considered rock solid.

Taking its cue from Europe and Asia, it is all quiet on the western front as North American trading kicks off. As indicated above, the minutes from last month’s policy meeting expressed extreme caution, especially on the issues of China and domestic inflation. The new wrinkle was a bit of trepidation concerning the American labor market, which caused a few voting members to make some interesting comments toward September’s “eventual” rate hike. At 830am, we get another look at jobless claims and the market is anticipating that 272k Americans filed first time unemployment claims for the week ending August 14th. At 10am, existing home sales for the month of July will be released and the market is looking towards 5.4m sales. The housing market is another sector that could help guide rates higher should its situation markedly improve. Liquidity is light this time of year so expect volatile algo-led reactions in the event data surprises on either the downside or upside.

June Canadian wholesale sales are on the data calendar this morning with the headline reports still to be reported on Friday. Tomorrow, markets will get a peek at the all-important June retail sales and July inflation rate data. The Canadian dollar, which as been trading up and down with commodity prices this week, may get a lift should inflation surprise on the upside and beat the market’s expectations of +1.2% year-over-year. The Canadian economy still struggles to shake off the recessionary effects of falling oil prices, as global demand wanes – led by slowing growth in China and mainland Europe. A subdued demand outlook should keep the CAD trading weaker as markets creep out of the summer doldrums and into autumn. Next week, Canadian markets are devoid of data so it will be oil and other “outside” effects which pace markets.

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