We warned here yesterday of the sometimes random nature of foreign exchange markets and highlighted the price action in the Canadian Dollar as an example of sudden directional shifts. On Tuesday afternoon USD/CAD broke through the November highs of 1.2900 and 1.2905; reaching a best level of 1.2912 before quickly reversing 40 pips lower. On Wednesday, the pair extended the move to the downside and overnight reached a low of 1.2823. Indeed, the CAD finished the second-best currency on the day after the EUR.
In economic news, Canadian wholesale sales increased a much stronger than expected +1.5% to $63.0 billion in October, more than offsetting the 1.1% decline in September. Gains were reported in six of seven subsectors, together representing 81% of total wholesale sales. The machinery, equipment and supplies and the personal and household goods subsectors contributed the most to the increase.
Wholesale inventories, meantime, increased 0.8% to $82.1 billion in October, the sixth gain in seven months. The machinery, equipment and supplies subsector (+3.5%) led the increases, with higher inventories in all four industries in the subsector. In October, the increase was led by the construction, forestry, mining, and industrial machinery, equipment and supplies industry (+3.5%). The machinery, equipment and supplies subsector has recorded increases in four of the past five months, increasing 7.0% over that period.
The Canadian Dollar opens in Europe this morning at USD1.2830 with GBP/CAD at 1.7145 and AUD/CAD at 0.9830. Both CPI and retail sales are released this afternoon so we could well see further swings in an increasingly illiquid pre-Christmas FX market.