Daily Economic Commentary: Canada

[PipDiddy]

Well, the loonie's winning streak had to end sometime, didn't it? After almost two weeks of gaining against the greenback, the loonie took a breather yesterday, causing the USDCAD to climb to a high of 1.0233.

Only the motor vehicle sales report was released from Canada yesterday. The report showed that sales of automobiles stayed flat in January, just as expected. Still, the loonie easily caved to greenback pressure as traders anticipated a hawkish FOMC statement for today. Keep an eye out for that at 6:15 pm GMT.

Canada is set to release its labor productivity report for the fourth quarter of 2009 at 12:30 pm GMT today. The report could print a 0.7% uptick in productivity, up from the 0.3% decline seen in the previous quarter. However, counter-intuitive as this may sound, higher productivity doesn't necessarily bode well for the economy. Having more productive workers usually implies that companies won't need to raise wages or hire new employees. A weaker than expected figure could then keep the loonie afloat.

Also due today is Canada's manufacturing sales report, which could churn out a 0.7% increase. This would be a slightly moderated growth, almost half of the 1.6% rise seen in December. Still, if the actual figure beats the consensus, the loonie could resume its rally.

[PipDiddy]

The Loonie delivered the greenback another beating all throughout yesterday. The USDCAD broke below the 1.0200 significant support and is now trading at 1.041. Will the Loonie finally embrace parity with the dollar?

Canada’s 4Q labor productivity grew by 1.4% which is stronger than the 0.7% estimate. An increase in labor productivity is usually bearish for the Loonie because it translates to a decrease in the workers’ wages. During the times of high unemployment, workers are ‘forced’ to work efficiently in their efforts to preserve their own jobs.

On a separate report, Canada’s manufacturing sales rose by 2.4% in January to C$44.6 billion, which is four times than the 0.7% market forecast. December’s sales was also revised up to 1.9% from 1.6%. The rebound in demand in the US has helped Canada’s exports. Being one of the major trading partners of the US, Canada is set to benefit more from the improvements in the US’s economy.

In the Us, the lack of surprises from the FOMC, which kept the central bank's interest rate the same at 0.25%, even pushed the USDCAD lower. The USDCAD fell and settled at 1.0142 yesterday from 1.0193.

Today (12:30 pm GMT), Canada’s January wholesales sales are set to be released. Sales are expected to have grown again by 0.6% in January after already rising by 0.7% in the month prior. We could be up for a positive suprise here, though, given the stronger manufacturing sales that Canada printed during the same period. Such could give the Loonie some additional boost.

[PipDiddy]

For the second day in a row, the Loonie inched closer to parity and ended up higher against the dollar. The USDCAD ended the day at 1.0101, 50 pips lower from its opening price during the Asian trading session.

The wholesale sales report helped give the Loonie a slight boost. The report showed that sales rose 3.0% in January, significantly higher than the 0.6% increase initially predicted. December's figure was also revised up to 0.9% from 0.7%. A rising wholesales report is usually indicative of future consumer activity, because retailers tend to order more from their suppliers when they think that sales will improve.

On the docket today is Canada's international securities transactions report for the month of January. It measures the total value of Canadian stocks, bonds and other financial assets purchased by foreign investors. An 8 billion CAD surplus balance is expected, lower than the previous month's 11.23 billion CAD surplus.

[PipDiddy]

The CAD finally took a fairly significant hit against the USD, giving up all its gains from the previous day. However, with one more round of trading to end the week, will the CAD bulls land a final blow take the pair at parity?

With no data coming out from the US, all eyes will be on Canadian data during the US session, when CPI figures and retail sales data come out at 11:00 am GMT and 12:30 pm GMT respectively. Both accounts are expected to show increases, with CPI seen to have risen by 0.4% last month, up from 0.3% in January. Meanwhile, retail sales are projected to have grown by 0.5% during the same period.

Now, as my buddy Forex Gump said in his latest post, if these reports come in better than expected – and really, given the excellent run of economic data, it shouldn't be too much of a surprise – it may just boost the Canadian dollar all the way to the magical 1.000 mark.

[PipDiddy]

Almost, but not quite! The Loonie came 60 pips short of reaching parity with the greenback last Friday as the Canadian retail sales report printed stronger than expected results. Still, the Loonie reached a new yearly high of 1.0062 before pulling back.

Canada's January retail sales grew by 0.7%, a notch ahead of the expected 0.6% increase, as sales of home renovation supplies surged during the month. Purchases of furniture, home furnishings, and electronics also posted strong increases in January. Core retail sales, which exclude automobile purchases in the calculation, chalked up a 1.8% increase.

Aside from that, Canada's inflation reports also printed strong results. The headline CPI printed a 0.4% rise in price levels while the core CPI showed a 1.8% jump. This carried the annual inflation rate past the central bank target, adding signs that the BOC could consider hiking rates earlier than projected.

Will the Loonie make it all the way to the elusive 1.0000 mark this week? The lack of hard-hitting economic catalysts on deck seems to suggest that the Loonie could have a tough time doing so.

Canada's first economic report for the week is its leading index due tomorrow 12:30 pm GMT. It could post another 1.0% increase in February, reflecting the consistent improvement in Canada's economic indicators. The Loonie could resume its rally if the actual figure comes in much better than the consensus.

On Wednesday, BOC Governor Mark Carney is scheduled to testify at the Canadian Association for Business Economics in Ottawa. Stay tuned at 5:00 pm GMT in case he drops hints about the central bank's future monetary policy decisions.

[PipDiddy]

The Loonie extended its losing streak to three against the dollar yesterday. The USDCAD rose to a high of 1.0244 from 1.0173 and then settled at 1.0190. Will the Loonie extend its losing stretch to four or will it resume its stellar run during the past couple of weeks?

Canada was report-free yesterday. The drop in crude oil prices, however, was reflected in the Loonie’s price action. The Loonie has an 80% correlation with the price of crude oil since it is one of the major exports of Canada to the US. April crude oil fell to $77.82 per barrel earlier during the day but was able to close higher at $81.65 per barrel.

Today (12:30 pm GMT), Canada’s leading index for the month of February will be released. The index is seen to have increased again by 0.9% following a similar rise in January. With most of Canada’s recent economic data showing upbeat figures, the index could come in better than the market’s consensus. Such could give the Loonie another push higher.

[PipDiddy]

Due to the lack of hard-hitting economic news, the USDCAD was unable to find clear direction in yesterday's trading session, just bouncing up and down session highs and lows. The pair closed the day at 1.0167, just 20 pips lower from its Asian open price.

For today, Bank of Canada Governor Mark Carney is scheduled to make speech at 5:00 pm GMT. As the head of BOC, more often than not, his words tend to move the foreign exchange market. In the past, upbeat statements that highlight Canada's relatively better economic conditions have provided a lot of support for the Loonie. If we see the same later, the USDCAD could starting inching closer to parity again.

Also watch out for the durable goods orders report and the new home sales coming out from the US later. Given Canada's proximity to the country, news coming out of the US creates quite a hefty impact on the Loonie's value.

[PipDiddy]

Yelp! The Loonie got stuck under an avalanche of risk aversion, allowing the dollar to come out ahead. The USDCAD closed at its highest level in almost 2 weeks, to finish at 1.0268. Bye bye parity?

Aside from the risk aversion that was rampant in the markets, BOC Governor Mark Carney provided further fuel to take the USDCAD higher, as he delivered some mixed comments in his speech yesterday. He said that while he plans to keep interest rates low until mid 2010, he said that this decision would be based on inflation, which he also admitted was growing faster than expected. However, this didn't lead to any CAD buying, as Carney also expressed concern about Canada's productivity, and even brought up the continued appreciation in the value of the Loonie!

Remember, in the past, BOC officials have warned against a stronger CAD, as it would make Canadian exports more expensive. With the Canadian economy being heavily export based, this would put a drag on their recovery. Recently however, the CAD has been on a tear, and almost hit parity last week. It'll be interesting to see whether BOC officials try to implement “verbal intervention” to get the CAD at levels they deem acceptable.

No data coming out from Canada for the rest of the week, but you better keep your helmets on just in case we get further news coming out from the US or euro zone that sparks another run of risk aversion.

[PipDiddy]

Even though Canada didn't release any economic reports yesterday, the Loonie was able to edge higher against the greenback. The USDCAD dipped from the 1.0250 area to a low of 1.0171 during the US session.

The Canadian dollar outpaced its US counterpart yesterday possibly because Fed Chairman Ben Bernanke announced that the US fiscal outlook remains somewhat dark. He added that their economy continues to need the support of accommodative monetary policies. This put the US economy in stark contrast with that of Canada, which seems to be aiming for monetary policy tightening by mid-2010.

Canada won't be releasing any economic reports today but watch out for economic reports from the US, namely their final GDP and consumer sentiment index.

[PipDiddy]

Last week was not a good one for the Loonie bulls. After touching low of 1.0062 on March 15, the USDCAD bounced back and rose to 1.0304 from 1.0173.

Today at 5:10 pm GMT, BOC Senior Deputy Governor Paul Jenkins will deliver a speech at the Economic Club of Canada. Traders could be looking for some hints in his talk regarding the bank’s possible future monetary policies. Any hawkish statement could give the CAD some support.

Tomorrow, Canada’s raw materials price index will be on tap. The index is seen to have slipped by 1.0% in February after gaining by 3.0% in the month prior. A drop here could negatively reflect on the country’s inflation and therefore could be bearish for the Loonie.

On Wednesday, Canada’s month-over-month GDP growth in January will be released. Based on the market’s consensus, the economy likely grew again by 0.5% in the month on top of its 0.6% expansion in December. There’s a chance, however, that this account could come in better than expected given its solid retail sales gain of 1.8% during the same month. A better than projected result would be bullish for the Loonie.