OTTAWA — Flip a coin this week and chances are the eagle will be the winner not the low-flying Canadian loonie.
Economic data out of the United States should trump our numbers as the divergence between the two countries widens.
We “could see further good news regarding the rebound in U.S. growth, with housing starts and industrial production data expected to rebound more than consensus expects,” say economists at CIBC World Markets.
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But the positive spin may not be enough to return the U.S. Federal Reserve back to its interest–rate trajectory — a course that began as a four-times-this-year plan to raise lending levels, but could stall after just one increase.
“Even with improving news on the growth front, we still favour a September — rather than a June — hike,” said CIBC’s Andrew Grantham.
A lot will depend on what happens over the next few days.
“While the U.S. data appears to be taking a turn for the better . . . figures are likely to show the tide turning the other way in Canada,” Grantham noted in his weekly outlook.
Last week’s retail sales numbers in the U.S. set a high bar for data — surging 1.3 per cent in April after a 0.3-per-cent decline the previous month.
“The Fed will need the good news to keep rolling in before being comfortable hiking interest rates,” said Grantham.
First up this week, Tuesday’s reading on U.S. inflation should show a slight increase for April — rising to an annual pace of one per cent from a year-over-year gain of 0.9 per cent in March. That leaves breathing room for U.S. prices to continue rising, even if the Fed does decide to raise borrowing costs again at some point this year.
In Canada, the pace of price increases — set for release on Friday — will likely come in at 1.7 per cent in April, up from 1.3 per cent a month earlier, closing in on the Bank of Canada’s target of two per cent.
If anything, this country’s central bank will likely keep its key borrowing level on hold into 2017 — and the next move could just as easily be down as up, if the Canadian economy continues to struggle from the oil-price plunge and, now, the impact of wildfires in Alberta’s oilpatch.
“Given the disappointing trade figures released a couple weeks ago, we are poised for softness in both manufacturing shipments and potentially wholesale trade activity for March,” noted CIBC’s Grantham.
Many forecasters expect Tuesday’s factory shipments data for Canada to show a contraction of 1.7 per cent in March, after even weaker activity in February, which was down 3.3 per cent.
Canadian wholesale trade for March, to be released Thursday, will be nearly flat following a 2.2-per-cent drop the previous month.
But considering consumer spending accounts for a big chuck of this country’s economy, Friday’s report on retail activity in March for will be closing watched.
The average outlook, however, is for a decline of 0.7 per cent — compared to a strong 0.4-per-cent rise in February.