Daily Economic Commentary: Canada

[PipDiddy]

Thanks to the rebound in commodity prices, specifically the uptick in the price of crude oil, the Loonie was able to find some buying support in yesterday's trading session. After opening the week at 1.0704, the Loonie found itself at 1.0609 by the end of the US trading session.

No economic data was released from Canada yesterday and we won't be seeing any again today so expect the Loonie to be driven by the price action of commodities and economic data coming out of other nations, most especially the pending home sales report from the US at 3:00 pm GMT.

[PipDiddy]

Make that two goals in a row! The Loonie trickled in a slap shot and scored against the dollar. The USDCAD now sits at 1.0575. Will we see a hat trick today?

The Canadian dollar benefited from a run of risk appetite last night, as it caused most other majors to gain versus the dollar. Furthermore, I took a look at commodity prices and saw that oil prices also rose yesterday. Always remember that the Loonie is sensitive to oil trading because oil is one of Canada's major exports.

With nothing coming out today from Canada, expect CAD trading to be dictated by news from other countries, more specifically from across the southern border (the US). The ADP employment and the ISM non-manufacturing PMI reports are due today and could set the tone for risk sentiment ahead of the NFP report due later this week.

Tomorrow could bring more volatility as the building permits data and the Ivey PMI are both due at. New permits are expected to have risen by 2.9% in December, which would be a nice improvement from November's decline of 4.6%. This would indicate that the construction industry is picking up since building permits are the first things needed before beginning construction.

Meanwhile, the Ivey report is expected to hop above the baseline score of 50 – scores above this figure indicate expansion whiles scores below it suggest contraction. The index is expected to have a reading of 52.4, up from January's reading of 48.4. An uptick would indicate that Canadian business managers are becoming slightly more optimistic about the economy.

[PipDiddy]

Commodity currencies wept over their losses as the US dollar bulls took the upper hand yesterday. Strong economic figures from the US pushed the USDCAD from the 1.0550 area above the 1.0600 handle. Canada didn't release any economic reports, leaving the loonie vulnerable to greenback strength.

Today, Canada will release its building permits report at 1:30 pm GMT. It could show that building permits rebounded by 2.7% in December after sliding down by 4.6% in the previous month. Although this increase is feeble compared to the 18% rise seen last October, a better than expected figure could allow the loonie to recover from yesterday's tumble.

Canada's Ivey PMI is also due today. The report, which will be released at 3:00 pm GMT, could show that the manufacturing sector expanded in January. After sinking below the 50.0 mark in December, the indicator could post a recovery by climbing from 48.4 to 52.3.

[PipDiddy]

The Loonie was not able to escape the greenback’s broad-based onslaught in yesterday’s trading. The USDCAD rose to 1.0727 from 1.0624.

Canada’ December building permits and the Ivey PMI in January both logged in less-than-stellar results. The country’s building permits fell short of the market’s 2.7% estimate with only a 2.4% gain. Similarly, the Ivey PMI was only able to reach 50.8, which is below the 52.3 consensus. These dismal results of course added some selling pressure on the Loonie. The selling, however, intensified more when the US’s initial jobless claims reached 480,000.

Later, Canada’s version of the employment report will be made public. The net change in employment for the month of January is seen to be at 15,200. The country’s jobless rate, however, is expected to remain the same at 8.5%. In any case, any increase in payrolls in Canada and in the US could give the Loonie a much needed lift.

[PipDiddy]

Despite the strong case of risk aversion last week, the Loonie was able to keep its ground against the US dollar. The USDCAD was hardly changed, closing the week at 1.0701, a mere five pips lower from its week open price of 1.0706.

Canada's strong employment situation report gave traders a reason to hold on to the Loonie. The report revealed that 43,000 net jobs were added in January, almost thrice the initial forecast of 15,200. Furthermore, the unemployment rate, which was expected to remain at 8.5%, fell to 8.3% instead. I'd be careful to read to much into the number though as digging deeper into the report would reveal that the boost came mostly from part-time work... 41,500 in fact.

First up this week is the report on housing starts. It is predicted to show that an annualized number of 180,000 homes began construction in January, slightly higher than the 175,000 figure seen the month before. The actual result will be released later today at 1:15 pm GMT. If the report comes out better-than-expected, we could see the USDCAD's highest price level last week hold...

On Wednesday, Canada's trade balance for the month of December is due. The trade balance measures the net difference in value between exported and imported goods. A positive balance is called a surplus, which means more goods were exported. On the other hand, a negative balance is called a deficit, which implies more goods were imported. The forecast for December is a deficit of 100 million CAD, down the 300 million CAD deficit seen the month before.

[PipDiddy]

Poor Loonie! Despite some good economic data, the CAD was not able to make any headway against the dollar. Once again, the USDCAD trickled higher, closing out at 1.0746.

Housing data released yesterday indicated that the housing industry is improving in Canada, as the annualized rate of housing starts rose to 186,000. This marked the highest level in more than a year. However, with other recent data showing improvements in the housing sector, this has led to speculation that a new housing bubble could be forming. Is the housing sector benefiting from ultra low rates? Is it time for the Bank of Canada to start raising interest rates?

Not so fast, according to BOC deputy governor Pierre Duguay. In a speech yesterday, Duguay said that rates will remain at current levels at least until the middle of 2010. He said that a strong CAD is putting a drag on economic recovery. Well, with the CAD's recent slide, it looks like BOC officials are getting exactly what they want.

[PipDiddy]

Even though Canada didn't release any economic reports yesterday, the CAD was able to make headway against the greenback as investors' risk appetite improved. After lingering above the 1.0750 level for the past few days, the USDCAD dipped to a low of 1.0646 recently.

Canada is set to report its trade balance data at 1:30 pm GMT today. The report could show that the nation's trade deficit narrowed from 0.3 billion CAD to 0.1 billion CAD in December. Also, watch out for the release of the US trade balance data, which could make way for a bumpy ride for the USDCAD. The US trade balance could also print a smaller deficit for December.

[PipDiddy]

The Canadian Loonies scored another close win against the US Greenbacks in yesterday’s currency tourney. The USDCAD fell and settled at 1.0630 from 1.0679.

Canada’s negative trade balance remained the same at –C$0.2 billion in December. The consensus was only –C$0.1 billion. Economists say that low demand from the US plus the strong Canadian dollar has been putting a strain on the economy. The result, however, did not have much impact on the Loonie’s short term valuation. Still, it was able to end the US session on a positive note.

Later at 1:30 pm GMT, Canada’s new housing price index will be reported. The index is seen to post another 0.4% gain in December on top of the 0.4% rise during the month prior. The result, though, will most likely have an mild effect on the Loonie.

[PipDiddy]

Despite the fresh wave of risk aversion, the Loonie was able to paddle to victory yesterday. Greece’s debt woes, the usual proponent of risk aversion lately, could be far from over now that EU officials have decided not to dole out direct aid to the ailing nation.

The rise in Canada’s new home prices was probably the reason why the Loonie was able to keep its head above water. New home prices rose for the sixth straight month in December, climbing by 0.4% on the heels of improving market conditions. Although house prices were still down by 0.9% from a year ago, concerns about a possible house price bubble started to form. However, plenty were reassured by Finance Minister Jim Flaherty’s statement saying that there was no evidence of home-buyers taking on unsustainable debt.

Today, we turn our attention to the automobile industry as Canada releases the new motor vehicle sales report for December. After sliding down by 6.0% in November, new automobile sales are expected to rebound by 2.0% in December. Even though this report is slated to have a minimal impact on the loonie’s price action, a stronger than expected figure could provide support for the currency.

Still, keep an eye out for the US retail sales report also due today. Would we see another disappointment this time? Could an upbeat report fuel risk appetite or would it spur more US dollar buying? Better stay tuned during the release of the actual figure at 1:30 pm GMT.

[PipDiddy]

Woooo! Look at that Loonie go! The Canadian dollar made some impressive gains against the dollar last week, with the USDCAD pair dipping all the way down to 1.0516. Is this a sign that the CAD is back on track? Or will dollar bulls see this as an opportunity to buy the pair once again?

Over the next two days, manufacturing and wholesale sales will be available at 1:30 pm. Manufacturing sales are expected to have risen by 2.1% during the month of December. This would mark a steady improvement from November’s rise of just 0.1%. Meanwhile, wholesales sales are estimated to have grown by 0.6% in December, down from a rise of 2.5% increase in November.

Still, I have a feeling that those reports wont cause too much noise in the markets. Instead, I think traders will be gearing up for some inflation data due on Thursday. The consumer price index is projected to print a 0.3% rise in consumer goods during the month of January. Meanwhile, core CPI – which doesn’t include the 8 most volatile items – are expected to show a rise of 0.1%.

Take note that inflation is one of the more closely looked data that the BOC focuses in on when deciding upon interest rates. A spike in inflation could give reason for central bank officials to raise interest rates sooner than expected. And we all know what the prospect of a rate hike does for a currency – it gives traders a reason to buy it up!