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Market News Canadian dollar hits two-week low as investors worry about drop in wholesale sales

The Canadian dollar weakened to a near two-week low against its U.S. counterpart on Monday as domestic data showed a surprise drop in May wholesale trade, supporting the view that the Bank of Canada could cut interest rates this year.

At 2:58 p.m., the Canadian dollar was trading 0.4 per cent lower, at 1.3111 to the greenback, or 76.27 U.S. cents. The currency, which touched its weakest intraday level since July 10 at 1.3119, has pulled back from a near nine-month high on Friday at 1.3016.

“With weaker data potentially creating more expectation in the market for easier policy from the Bank of Canada, I think it’s playing as a headwind to the CAD today” said Michael Greenberg, a portfolio manager at Franklin Templeton Multi-Asset solutions.

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Chances of a Bank of Canada interest rate cut this year have climbed to more than 50 per cent from about 20 per cent before the Bank of Canada’s interest rate decision earlier this month. The central bank left its benchmark interest rate unchanged at 1.75 per cent but highlighted the risks that trade wars posed to the global economy.

Canadian wholesale trade fell 1.8 per cent in May after five months of gains, Statistics Canada said, as sales in the motor vehicle and auto parts industries dropped, while the inventory-to-sales ratio rose to its highest level since October 1995. Analysts had predicted an increase of 0.5 per cent for wholesale trade.

“Not only was the headline number quite weak versus expectations for wholesale trade, some of the internals, such as high inventory levels, are also a little bit concerning,” Greenberg said.

It was the second domestic economic report in as many trading days that was weaker than expected. On Friday, data showed a surprise decline in May retail sales.

Meanwhile, the price of oil, one of Canada’s major exports rose on Monday, on worries about possible supply disruptions in the Middle East after Iran’s seizure of a British tanker last week. U.S. crude oil futures settled 1.1 per cent higher at $56.22 a barrel.

Canadian government bond prices were higher across the yield curve, with the two-year up 6.5 cents to yield 1.431 per cent and the 10-year rising 27 cents to yield 1.481 per cent.

The gap between Canada’s 2-year yield and its U.S. counterpart widened by 3.0 basis points to a spread of 38.3 basis points in favour of the U.S. bond, the biggest gap since June 18.

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