Daily Economic Commentary: Canada

Trading Discussion News and Economy
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The Loonie was off to a slow start during the Asian session but saw some swashbuckling action when the US session kicked off. After hitting an intraday high of 1.0066, the USDCAD retreated towards the 1.0000 mark.

Loonie strength yesterday could be attributed to Canada’s strong trade balance report, which posted another surplus for February. Their trade surplus almost doubled from 0.8 billion CAD to 1.4 billion CAD during the month, marking its fifth straight surplus. Components of the trade balance revealed that the increase was spurred by a 2.8% increase in exports and not a decrease in imports. As it turns out, the Loonie’s recent rise hasn’t been hurting their export industry. Yipee!

However, Canada’s new home price index posted weaker than expected results, climbing by only 0.1% instead of the expected 0.5% rise. Still, the indicator marked its eighth consecutive month in increases, bringing the annualized reading to 0.9% in February.

Canada won’t be releasing any economic reports for today but keep an eye out for the release of US CPI and retail sales reports at 12:30 pm GMT. We all know how much of a ruckus these reports could cause in the markets!

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The Loonie was finally able to break below the 1.0000 net against the dollar yesterday. The USDCAD slid and closed at 0.9990 from 1.0018. The next major support for the pair would be at its one-year low of 0.9820.

No economic reports were released in Canada yesterday. Strong US retail sales together with the better-than-expected corporate earnings from companies like Intel and JPMorgan Chase, however, propelled a broad-based buying among higher yielding assets. This pushed the anti-dollar currencies like the Loonie higher.

Canada’s economic calendar today is report-free as well. The Loonie, though, could be affected by the publication of several top tier economic releases like the weekly unemployment claims, Treasury International Capital (TIC) purchases, Philadelphia Fed manufacturing index, etc. in the US. Upbeat numbers from these accounts could once again spur risk taking and CAD buying.

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Yesterday, the CAD found itself giving up all of the ground it took from the USD last Wednesday. The USDCAD closed out the US trading session at 1.0032, almost 50 pips from its opening price during the Asian trading session.

The decline in the CAD’s value was most likely from risk aversion stemming from euro zone’s problem child… or rather, problem nation. Apparently, news broke out yesterday that the joint IMF-EU bailout plan would not be enough to bring Greece out of its rut.

The only data of interest coming out from Canada today is its manufacturing sales report for February. It is projected to show an increase of 1.0% for the month, which is lower than the 2.4% rise seen in January. Rising sales is typically considered as bullish for the CAD, because it directly translates to improvements in Canada’s gross domestic product. The actual result will print at 12:30 pm GMT.

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Ouch! The Canadian dollar hit a risk aversion trip wire, falling face first versus the dollar. The USDCAD pair closed exactly 100 pips higher for the day, as traders became more risk averse when news about Goldman Sachs broke out.

It was a rough day for the Cad, which dropped over 1% against the dollar. Manufacturing figures came in worse than anticipated, printing a rise of just 0.1%. It was expected that sales rose by 1.0% in February.

Next, risk aversion rose on news that the SEC had accused banking superstar Goldman Sachs of financial fraud. This of course, led to widespread risk aversion, which pushed safe haven currencies like the USD and JPY higher. As long as this issue lingers around this week, the USDCAD may have difficulty reaching the magical 1.000 mark.

Of course, risk appetite may swing in favor of the CAD bulls, as there are a couple of catalysts over the next few days that could cause large scale volatility.

First we start with international securities transactions figures due at 12:30 pm GMT. Expectations are for a dip in January’s figure of 11.83 billion CAD to just 8.65 billion CAD in February. Take note that these figures are indicative of the demand for Canadian securities – in order for investors to purchases these Canadian goodies, they first need some Loonies. Thus, more transactions means more demand for the CAD, which boosts the CAD higher.

Now, I wouldn’t be surprised if figures came in higher – after all, the CAD has been the best performing currency so far in 2010 and has just hit parity against the dollar.

Anyway, moving on, the Bank of Canada will be releasing its interest rate decision tomorrow at 1:00 pm GMT. Now, I know BOC Governor Mark Carney and his posse have repeatedly said that they will not raise rates (currently at 0.25%) earlier than June, but as my buddy Forex Gump has pointed out in a recent post, the Canadian economy is showing more and more signs of strength. Could we be in line for a surprise hike? Maybe, just maybe!

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The loonie continued to edge lower against the greenback yesterday, pushing the USDCAD to a high of 1.0216. Weak economic data from Canada, risk aversion, and uncertainty ahead of the BOC rate decision joined forces in keeping the loonie weak.

Canada’s foreign securities purchases report showed that international demand for Canadian assets fell from C$11.84 billion to C$6.72 billion in February. This was lower than the consensus of C$8.95 billion in foreign securities purchases. Aside from that, news that China would start implementing tightening measures sent commodity-linked currencies like the loonie lower.

The BOC is set to announce its rate decision at 1:00 pm GMT today. Although the central bank is not expected to hike rates anytime soon, traders are most likely on the lookout for bullish comments from BOC officials, which could provide support for the loonie. Perhaps BOC Governor Mark Carney could give an actual schedule for their first rate hike, who knows?

208

The Loonie is back! The Loonie swamped the dollar yesterday following some hawkish statements by the Bank of Canada (BOC). The USDCAD sunk to 0.9988 after opening from 1.0149.

The BOC kept its interest rate unchanged again at 0.25% yesterday. The bank, however, signaled the G7 group that it could be the first one among them to tighten their monetary policy. It said that inflation this year and in the next could be higher than its 2% inflation target. It also upgraded its GDP growth forecast this year from 2.9% to 3.7%. Soon after these comments were heard, the USDCAD dipped by more than 100 pips!

Today at 12:30 pm GMT, Canada will issue its February wholesale sales figure. Sales are forecasted to have increased again by 1.0% in February on top of the 3.0% gain that it had during the previous month. Given the BOC’s bullish view on Canada’s inflation and on the country’s economy as a whole, wholesale sales in February could have been a little stronger than what is expected. If such is the case, the Loonie could be lifted higher yet again.

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The highly overbought Loonie found itself giving up some of its gains in yesterday’s trading session. Although the USDCAD was sold early on in Asia, the pair was able to bounce back once the US trading session rolled along to end the day at 0.9992.

The losses the Loonie experienced during the US session was mostly caused by worse-than-expected results on the wholesales sales report. It showed that wholesales sales fell 1.2% in February, opposite the 1.0% gain initially predict. In addition, January’s 3.0% gain was revised down to 2.4%.

For today, a couple of red flags could be found in Canada’s economic calendar.

First, at 12:30 pm GMT, is Canada’s leading index for the month of March. It is expected to print a 0.8% reading, which is exactly the same as the reading seen in February. The index, which is made up of ten economic indicators (some previously released), is designed to see whether Canada’s economy is improving or not.

Second, at 2:30 pm GMT, is the Bank of Canada’s quarterly monetary policy report. The report basically contains the bank’s detailed assessment of Canada’s current and future economic conditions. Currency traders use the report as a way to predict possible rate hikes (or cuts).

Lastly, at 3:15 pm GMT, the BOC will hold a press conference to answer questions regarding its monetary policy report. This will probably garner the most attention from traders, so expect a bit of volatility during that time. Another round of hawkish statements from the BOC could send the Loonie flying high…

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For the second day in a row, the CAD gave up minimal gains, as dollar strength was seen across the board. The USDCAD closed at parity 1.000 and remained its daily range of 90 pips. With it being a Friday, could we be in line for some profit taking today from all those CAD bulls?

Canada’s leading index came in better than anticipated yesterday, rising by 1.0%, after consensus was for an increase of 0.8%. This wasn’t too surprising – after all, Canada’s economy has been on a romp lately, which has caused even the Bank of Canada to be more optimistic…

Speaking of the BOC…

The BOC released its quarterly monetary policy report yesterday and once again reiterated statements from earlier this week that it may be time to start withdrawing economic stimulus measures. Remember, earlier this week, the USDCAD dropped by over 100 pips once news broke out that the central bank would most likely hike interest rates before the end of the second quarter.

While yesterday’s statements didn’t provide any definite dates as to when the cash rate will be raised, chances are we might not see as strong reactions to interest rate rumors as we have seen in the past. As my buddy Forex Gump said in a recent post, the markets have probably started pricing in potential rate hikes, and we could see the USDCAD continue to hover around parity.

With that said, we could see some strong moves tonight, as we’ve got some top tier data coming out. First, at 11:00 am GMT, monthly consumer price index figures will be released. Forecasts are for a rise in the prices of consumer goods by 0.2% last month, while core data – which excludes the eight most volatile items – is seen to have risen by 0.1%. If we see more confirmation that inflation is on the rise, it would give even more reason for the BOC to hike rates sooner rather than later.

Later on, at 12:30 pm GMT, we’ve got retail sales figures on the docket. Headline retail sales are expected to have grown by 0.9% in February, while core sales (which doesn’t include automobile sales) are projected to have risen by 0.7%. Better than anticipated retail sales figures could give CAD bulls the energy it needs to take the USDCAD pair to a new yearly low.

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After the USDCAD hit a high of 1.0066 last Friday, the loonie put up a valiant fight and struggled to land back below parity. Would it be able to stay below the 1.0000 handle this week?

First, a brief glance back at the inflation reports released before the weekend. Both the CPI and the core CPI were disappointing as they failed to meet expectations. The CPI fell flat while the core CPI, which excludes volatile items, posted a 0.2% decline. This caused Canada’s annual inflation rate to dip from 1.6% to 1.4% in March, making it less likely for the BOC to hike interest rates in their next policy meeting in June.

This week, only one economic report is due from Canada and that’s their GDP reading for February. After printing a 0.6% expansion in the previous month, the Canadian GDP is expected to post a 0.5% growth for February. A stronger than expected results could give the loonie enough energy to rally. Watch out for the actual figure on Friday 12:30 pm GMT!

Also, keep your eyes and ears open for BOC Governor Mark Carney’s speeches this week. Now that Canada’s inflation reports have been released, the central bank head could give more concrete details about their future policy moves. He is scheduled to testify 7:30 pm GMT tomorrow and 2:30 pm GMT on Thursday.

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Trading of the Loonie was thin yesterday due to the absence of major economic flows from Canada and the other major economies. The USDCAD tiptoed around its parity line and eventually closed slightly higher at 1.0013 from 0.9998.

Today at 7:30 pm GMT, Bank of Canada Governor Mark Carney will testify before Canada’s House of Commons Standing Committee on Finance regarding the present situation of the country’s economy. It would be interesting to see if he would follow up on the bank’s bullish statements that it released during its last monetary policy decision. Previously, the bank said that it was considering a rate hike in the foreseeable future. It also upgraded its economic growth forecast for this year and the next. Any hints of a future monetary tightening in the governor’s upcoming testimony, then, would more likely send the Loonie higher.

213

Ouch. In just one day, the CAD gave up all of the gains it had over the USD this April. The USDCAD ended the US trading session at 1.0177, almost 200 pips higher! Hah, looks like the CAD won’t be ending this month with a bang.

Apparently, all the negative news from euro zone gave a chance for risk aversion to revisit the markets again. Greece’s debt drama series, which has been a hot topic among currency traders again recently, took another turn for the worse when the International Monetary Fund came out with a statement saying that they need to provide another extra 10 billion EUR for Greece. Needless to say, the CAD took a major hit and experienced a sell-off.

No important data on Canada’s economic calendar again today, but that doesn’t mean that we won’t be seeing some fireworks! Tonight, the FOMC will announce its decision on interest rates, which would have a serious impact on the foreign exchange market. Watch out if the FOMC keeps its commitment to keep rates low for an “extended period” later… Because if the FOMC decides to drop “extended period” from its statement, we might be in for some serious CAD selling… or USD buying for that matter.

214

A day after rising over 150 pips, the USDCAD gave back half of its gains as commodity trading picked up yesterday. The pair dropped about 80 pips from its opening price to end the day at 1.0090.

Even though trading was one directional, there was nothing really surprising with the USDCAD’s drop, as it was roughly equal to the pair’s average true range of just under 90 pips. It probably got a boost from increased risk appetite, as well as rising oil prices. Remember, with oil being one of Canada’s major exports, we could monitor the prices of crude oil and use it as an indicator to trade the CAD.

Tonight, Bank of Canada Governor Mark Carney will be speaking before the Senate Committee on Banking, Trade and Commerce. Be on the lookout for more hawkish statements, especially since the BOC has become more optimistic over the state of the Canadian economy. He may reiterate comments about rising inflation, which could fuel even more speculation by traders that the BOC will be raising interest rates sooner than expected.

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After hitting a high of 1.0198 this week, the USDCAD fell closer and closer to the 1.0000 handle in the past couple of days. Canada didn’t release any economic reports yesterday but the Loonie’s recent rally suggests that traders could be anticipating some good news from Canada today.

Would Canada’s GDP once again result to an upside surprise? Their February GDP reading, which is due 12:30 pm GMT today, could show that the Canadian economy expanded by 0.5% during the month, slightly lower than the 0.6% growth seen last January. But seeing how Canada’s monthly GDP reading has been posting better than expected results since November, there could be a chance that the February figure beats the consensus yet again. If it does, the USDCAD might make it all the way below parity to retest its former lows.

Also due from Canada today are its raw materials price index and industrial product price index, both of which are leading indicators of consumer inflation. Prices of raw materials are expected to be up by 0.9% while industrial product prices could post a 0.2% uptick for February. Watch out for those reports at 12:30 pm GMT.

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If the greenback was Floyd Mayweather, then the Loonie would be Sugar Shane Mosley since it got beat up miserably last week. By the end of Friday’s match, the USDCAD moved farther away from parity and closed at 1.0157.

Canada’s GDP figure for February failed to hit the consensus of a 0.5% expansion and posted a mere 0.3% uptick instead. Although this marks the sixth consecutive month that the Canadian economy has posted positive GDP growth, traders seemed disappointed as they sold off the Loonie after the report. On top of that, BOC Governor Mark Carney’s cautionary comments made it more difficult for the Loonie to stay afloat. According to him, the Greek debt crisis could have a negative impact on Canada if borrowing costs all over the globe climb higher in reaction to Greece’s need to secure more funds.

Now let’s shake off those negative vibes and focus on what’s in store for Canada this week. The first half of the week looks like a light one for the Loonie since Canada won’t be releasing any reports until Wednesday. By Thursday, Canada will release its building permits data which could print a 0.4% rebound in March, following February’s 0.5% decline. Also due Thursday is the Ivey PMI, which could show that the manufacturing industry expanded again in April.

On Friday, we’ll be seeing Canada’s employment report by 11:00 am GMT. It could post another increase in hiring for the month of April, reflecting the strength in Canada’s labor market. A total of 20.3K jobs are expected to be added during the month and this could keep the unemployment rate steady at 8.2%. Although stronger than expected results could allow the Loonie to zoom back to parity against the greenback, the non-farm payrolls report from the US might also have a say on the USDCAD’s price action on Friday.

217

The Loonie kicked off the week on a strong note yesterday, rallying against the greenback throughout the European and US trading sessions. The USDCAD ended Monday at 1.0105, 70 pips lower from its week open price.

It seems like the prospect of a rate hike from the Bank of Canada, as well as Canada’s better economic standing than the US, will continue to cap any rallies on the USDCAD.

No data coming out from Canada again today, but the Reserve Bank of Australia’s interest rate decision later could indirectly affect the Loonie’s price action. If the RBA hikes rate as expected, we could see the Loonie edge up higher against the greenback once again.

218

You know it’s risk aversion in play once you see the USDCAD rise by almost 150 pips from its opening price. With the USD rising across the board and oil prices falling, the USDCAD hit a 5 week high to close at 1.0249.

With no major data on the [=&currency[]=CAD&currency[]=GBP&currency[]=JPY&importance[]=&importance[]=3&importance[]=2&importance[]=1&display=daily"]economic menu](Forex Economic Calendar[) for today, we could see the CAD continue its losses should risk aversion remain in vogue. I’d keep an eye out for any news from the euro zone. It seems that their debt issues are at the center of this run to safety. If we see more sell offs in the EURUSD, this could once again lead to another dollar rally, which in turn could alter trading in other currency pairs.

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Dementors seemed to enjoy hanging out in the markets since they continued to spread fear and suck the risk appetite from investors. This pushed commodity prices even lower, dragging down commodity-based currencies such as the Canadian dollar.

The Canadian dollar hit a 2-month low against is North American rival, the US dollar, as US economic data came in stronger than expectations. Canada didn’t release any economic figures yesterday, leaving their currency with nothing to draw strength from.

Today, Canada is set to release its building permits data and Ivey PMI. Building permits could bounce up by 0.6% in March after sliding by 0.5% in the previous month. Meanwhile, the Ivey PMI could dip from 57.8 to 57.7 in April, implying that the expansion in Canada’s manufacturing industry slowed down a bit during the month. Watch out for these reports at 12:30 pm GMT and 2:00 pm GMT respectively since stronger than expected figures could provide the Canadian dollar some support.

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Risk aversion, this time stemming from user-error, pushed the Loonie almost 400 pips lower yesterday. From its Asian session opening price of 1.0297, the USDCAD reached as high as 1.0741 before settling at 1.0521 at the end of the US trading session.

Most of the day was characterized by risk aversion from euro zone contagion fears, which was later exacerbated by the news that a large trading desk erroneously sold $16 billion worth of future contracts. The building permits report, which came out better-than-expected (12.2% actual vs. 0.6% consensus), took a back seat because of the news.

For today, watch out for Canada’s employment data at 11:00 am GMT. The expectation is that the country’s unemployment rate remained at 8.2% in April, and that an additional 20,000 jobs were created on top of the 17,900 seen the previous month. This is good news for Canada, which could provide the Loonie with some much needed buying support later.

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Ka-chow! Thanks to some good employment data, the CAD came storming back! After hitting a high of 1.0741 last week, the USDCAD was able to close out the week at 1.0440.

Can you hear all that noise? It looks like the Great White North had a party last weekend. How come? Well, 108,700 jobs were just added to the economy last month! Yeahhhh mannnn! This beat forecast of a rise of just 24,300, and marked the largest gain in employment EVER! Meanwhile, the unemployment rate fell to 8.1%, down from 8.2% the previous month.

Rising inflation? Check! Good economic data? Spot on! Now, improving labor market? Hmmm… we may just see the Bank of Canada raise interest rates next month if this keeps up!

The only red flag I see today is the housing starts report due at 12:15 pm GMT. The annualized pace of housing starts is expected to remain steady at 200,000. If however, we see a better than anticipated figure, it may just send the USDCAD back to parity!

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The Loonie chalked up some gains against the US dollar yesterday, bringing the USDCAD below the 1.0300 handle. Investors seem to have gotten their risk-taking groove back, pushing the com-dolls slightly higher. Would the Loonie sink or swim today?

Only the housing starts report was released from Canada yesterday. The report showed that housing starts edged up by 1.3% in April to an annualized 202K increase in new home construction. This adds to signs that the Canadian housing sector is now getting back on its feet. Still, the actual results for April came in slightly less than the estimated 203K rise in housing starts.

Moving on to today’s economic schedule… Canada has no economic reports in store for today, which means that the Loonie could be extra sensitive to changes in risk sentiment.