Daily Economic Commentary: Canada

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The USD/CAD is poised to test its yearly low at 1.0783 as it teeters slightly above the 1.0800 level. The CAD stands to benefit from improvements in risk appetite even if this week's economic schedule is a bit light.

No economic reports are due from Canada until Thursday, when it releases its raw materials price index and industrial product price index. Both are leading indicators of consumer inflation. Last month's raw material price index came as a surprise, recording a 2.2% increase. A modest increase is expected for this month but this would nonetheless highlight the strengthening commodities-oriented economy.

The main event for Canada this week is its GDP release on Friday. The nation's monthly GDP is expected to fall by 0.4% in May and this weak reading could cause the CAD to give back some of its earlier gains.

Until then, oil prices could be a key factor in driving the USD/CAD pair towards a particular direction. Crude prices seem to be aiming for the $70 per barrel price and, if it hits that mark, we may find the USD/CAD making a new yearly low.

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Same with the other higher yielding currencies, the CAD was able to support its upward momentum over the ‘safe’ currencies USD and JPY.

No economic reports were due in Canada yesterday. Risk appetite in the global capitals markets at least in the Asia and Euro sessions remains the positive catalyst for the CAD. The CAD’s rise was, however, capped during the US session due to some profit taking actions.

No economic reports are scheduled today as well in Canada. Further risk tolerance, if it persists, would push the CAD higher.

[ForexGump]

The CAD failed to make significant headway against the USD even after making a new monthly high yesterday. It seems that CAD bears are persistent in keeping the pair’s yearly high intact. This kept the USDCAD pair pretty much range bound as it closed the US session at 1.0828, just a few pips higher from its 1.0812 Asian open. Canada’s empty economic calendar also kept price action dependent on risk appetite.

Today would probably prove to be the same as the only significant economic data scheduled for release is Statistics Canada’s raw materials price index at 12:30 pm GMT. The report records the monthly change in the average price of raw materials purchased by manufacturers. Economists see the report as a leading indicator of inflation because increased costs incurred by manufacturers are usually passed on to the consumers.

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The Loonie continued to lose against the USD yesterday, as the USD made a strong push on increased risk aversion. The USDCAD pair rose to 1.0908, wiping out gains that the CAD made earlier in the week.

Later today, the Raw Materials Price Index and Industrial Product Price Index will be released at 12:30 pm GMT. These reports help measures the change of materials bought and goods sold by manufacturers. It is expected that raw materials rose by 3.1% in the month of June, while the prices of goods sold only rose by 0.2%.

Tomorrow, the monthly GDP report is due. The report forecasts that there was drop of 0.4% in the month of May. Recent statements made by the BOC have indicated that the recession may be ending and that recovery is imminent. Let’s see if the release will reflect this view and post a better than expected figure.

[ForexGump]

The CAD resumed its rally against the USD yesterday after being deterred for a couple of days. Increased inflationary pressures in Canada, coupled with the rise in oil prices, enabled the CAD to regain strength.

Inflationary pressures were reportedly higher in June as factory costs posted significant increases. Raw materials prices were up by 6.2%, twice as much as the consensus at 3.1% and almost thrice as much as last month's 2.2% uptick. Industrial product prices rose 0.7%, beating the forecast of a 0.2% increase. This is a big leap from May, when industrial product prices were down by 1.2%.

Keep an eye out for the GDP report later at 12:30 pm GMT. Despite the BOC's optimistic comments regarding the Canadian economy, economic growth is expected to contract by 0.4% in June. This is a larger contraction from May's 0.1% downturn in economic growth.

Speaking of GDP, the US is also scheduled to release its advanced GDP report today. Quarter-on-quarter growth is expected to be down 1.4%, which is an improvement considering GDP was at -5.5% in the previous quarter. This economic release poses an event risk for the currency markets and could either spur or dampen risk tolerance.

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The CAD showed its resilience in last Friday’s trading as it still managed to gain over the USD despite a very weak Canadian GDP report.

Canada’s economy contracted for a 10th month in May due to a slack in manufacturing, mining and energy output. Its GDP have fallen more than expected by 0.5% after already declining by 0.2% in April. Canada’s economy was only projected to have shrunk by 0.4%. The CAD weakened following the report. However, it seemed that investors just took this as an opportunity to buy CAD as it resumed its rise shortly after.

The US also released its advance GDP report where it showed that the economy’s contraction have slowed to -1.0% during the second quarter after sliding by -6.4% prior. The result was better than what market participants initially estimated, -1.4%. Such prompted market participants to switch again to higher yielding currencies like the CAD.

Today, Canada will celebrate a bank holiday. The CAD would most likely advance again over the USD with an increase in the ISM manufacturing PMI in the US. The index is anticipated to rise to 46.4 from 44.8.

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Despite Canadians enjoying their Civic holiday, the USDCAD finally made a convincing new yearly low yesterday as money poured back into the foreign exchange market. The CAD is considered as a comdoll and therefore, it is usually one of the currencies most affected by degrees in risk appetite. If this kind of risk taking in the market continues, more CAD buying is probably in the cards.

No economic data due for release today so this could further magnify the effect of risk appetite (or aversion) on the pair’s price action. The next economic report, Statistic Canada’s building permits for June, will be released on Thursday, 12:30 pm GMT.

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CAD buyers finally took a break yesterday, as the CAD gave back much of its gains against the USD yesterday. The CAD lost as crude oil prices fell slightly to $70.90 per barrel, after testing the $71.50 price level. Nevertheless, price action didn’t break through support turned resistance at 1.0750, so it may have been temporary pullback.

Another slow day as no economic reports are coming out today from Canada – almost seems like an unofficial 5 day weekend for Canadians! Anyway, be on the lookout for news coming from the Stateside, as the ADP Non-farm employment change report and crude oil inventory level data will be released at 12:15 pm GMT and 2:30 pm GMT respectively. These reports could lead to more volatility, so be aware of any shifts in sentiment.

Tomorrow, we have the building permits report due at 12:30 pm GMT. Permits are expected to have risen by 1.1% from May to June.

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The Loonie started the day by heading north towards the 1.0800 mark but ended up taking a sharp U-turn at the end of the day. Remarks against the strength of the CAD resulted to the USD/CAD's sharp rally, which turned out to be unsustainable.

Canadian Finance Minister Flaherty commented against the appreciation of the CAD, which amassed huge gains in the past weeks. This verbal intervention made a slight impact on the USD/CAD as it rallied to a high of 1.0784 before resuming its downtrend.

Oil prices are set to make new highs this year, according to technical analysts from Barclays Capital. They projected that crude oil would rise above 74 USD per barrel based on their analysis of the price trend and candlestick formations. This report is definitely bullish for the CAD, whose price movement is positively correlated with oil or "black gold" prices.

Keep an eye out for data on building permits, which is due at 12:30 pm GMT today. A 1.2% decline is expected to follow the previous month's 14.8% increase in building permits. Canada's building permits have seen wild movements in the past months, surging by 14.8% after diving by 5.4% in the prior month. If this indicator makes another wild move, then the CAD might follow suit.

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The CAD finally slid against the JPY and USD after rising for about a month now. Like they say, you can’t win them all. The CAD has been consolidating for a couple of days now as market participants remain cautious ahead of the NFP report in the US today.

Canada’s building permits in June continued to expand after rocketing by 17.5% in May. It gained by 1.0% against expectations for a 3.0% drop. The total value of permits issued by municipalities rose to C$5.19 billion due to new hotel and laboratory projects and additional plans for residential developments.

Despite this increase, the CAD still closed the day in the negative territory against the USD and the JPY. Market participants are a little tentative about the capitals markets as they await the NFP report that is due at 12:30 pm GMT in the US today. An improving US labor market indicated by the NFP report will send the CAD to the ‘next level.’ On the other hand, dismal results will surely pull the CAD back to earth.