Daily Economic Commentary: Canada

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

Poor economic data that came out of Canada and positive US fundamentals gave the CAD a beating last Friday. The CAD began trading at 1.0766 against the USD in Asia and closed at the week at 1.0824.

Statistics Canada reported that employment is still significantly subdued as 44,500 jobs were shed in July, almost three times what was initially expected. The Ivey purchasing managers’ index also shared the same dismal tune. It printed a reading of 51.8, indicating that the rate of expansion of the manufacturing industry is not as fast as first thought. The unemployment rate, on the other hand, remained steady at 8.6% as fewer jobless people chose to stay in the labor market to look for employment. Despite weak data, economists said not to abandon hope of economic recovery. The pace might be slow but there is high chance that the country is on its way to recovery.

The CAD has gained almost 13% since the start of the year against the USD and it makes me wonder low the USDCAD pair would fall before staging a major rebound! The pair currently stands at 1.0823, up from its yearly low at 1.0664. With Friday�s severe swings, we�ll have to wait and see what this brand new trading week brings to the table as Canada’s report on housing starts is due tomorrow at 12:15 pm GMT.

The CAD fell down the Canadian Rockies again, extending its losing run to three days. The decline was attributed to a fall in global stock and oil prices, as well as speculation that the Canadian government feel that the Loonie has appreciated too much. The USDCAD pair rose to as high as 1.0930 before closing at 1.0886.

At 12:15 pm GMT, housing starts data will be available. The data - which is presented to show the annualized rate of new buildings that are being constructed - is expected to show a slight increase in the rate to 143,000, up from 141,000 in June. The rate has been on a steady rise the past few months, so it should be interesting to see if a good figure will spark some CAD buying or not.

Tomorrow at 12:30 pm GMT, the Trade Balance report for Canada is due. The report is expected to show that deficit shrunk to $600 million, down from the $1.4 billion the previous month.

The CAD had quite a beating yesterday as it took blow after blow of disappointing economic reports. Data from China, one of Canada’s major trade partners, showed no mercy as industrial production figures clobbered the CAD.

China reported a 10.8% uptick in industrial production, which was way below expectations of a 11.5% increase. Slower-than-expected growth in China translates to weaker demand for Canada’s commodities. And since Canada is an export-driven nation, a downturn in trade would hurt their economy.

Another source of disappointment is Canada’s housing market. Housing starts increased by 132K, which is lower than the forecast at 143K. This is also lower than the previous month’s 138K rise in housing starts. This enabled the USD/CAD to climb to a high of 1.1047 yesterday.

For today, Canada is set to report its trade balance at 12:30 pm GMT. The deficit is expected to widen from 26.0 billion CAD to 28.4 billion CAD. The NHPI or new house price index is also due at the same time. Prices of new homes are expected to hold steady in the previous month.

Posing an event risk for the currency market is today’s FOMC statement. If the Fed pushes through with the $300 billion purchase of longer-dated US securities, then we might see some wild wild moves in the market. Be careful out there!

The CAD�s price action (versus the USD and JPY) during the week was very reminiscent of the AUD�s movement. After rising for a little more than a month now, the CAD had a little set-back the other day as it slipped below its uptrend line. Similarly, it was able to spring up from the trend�s 38.2% Fibonacci level.

Canada�s negative trade balance (trade deficit) in June had improved to �C$0.1 billion from �C$1.1 billion. It was only anticipated to shrink to �C$0.6 billion. US�s demand for crude oil and industrial goods such as gold boosted Canada�s exports. Such can be seen as further signs that both the US and Canada�s economy are on the upturn.

No economic releases are scheduled in Canada today. Any optimism in the capitals markets would benefit the CAD because of its relatively higher yield compared to the USD and the JPY.

Optimism spurred by the upbeat FOMC statement sent the CAD rallying against the USD during the Asian session but failed to follow through during the US session as dismal figures from US data curbed risk-taking. The USDCAD�s price action clearly mirrored the effect of risk on the currency markets yesterday.

Today at 12:30 pm GMT, look forward to Statistic Canada�s June reports on factory sales and new motor vehicle sales. The factory sales report, which measures percentage change of sales made by manufacturers monthly, is expected to have remained flat after dropping 0.6% the month prior. Meanwhile, new motor vehicle sales are predicted to have dropped by 0.9% after rising 1.0% in May.

Although both reports could provide some volatility for the CAD, the currency�s direction would most likely be dictated by degrees in risk appetite, especially with the US CPI due later.

Poor consumer confidence data from the US seems to have raised questions about economic recovery. This is in turn, caused the CAD to continue its fall, as the USDCAD pair shot up and closed the week at 1.0998.

The CAD also wasn�t helped by falling oil prices, as crude oil fell to $69.25 per barrel.

The US consumer confidence report overshadowed some goods news from the Canadian front, as manufacturing sales rose by 1.9% from May to June. It was expected that there would be no increase and that sales would remain steady. As it is, this marked just the 2nd time in 11 months that sales rose. While it is encouraging to see sales pick up slightly, the rise was attributed to aerospace orders. With aerospace orders normally being big one time purchases, this may just be an aberration. We�ll have to wait and see whether sales will pick up in the coming months as companies are still looking to cut inventory levels.

New motor vehicle sales also showed a small surprise, as they fell by just 0.6% from May to June after it was predicted to that sales would fall by 0.9%.

Tomorrow, the Foreign Securities Purchased report for June will be released at 12:30 pm GMT. This report measures the amount of stocks, bonds, and other money market assets that foreigners purchased during the reported month. It reflects demand for the CAD, as one would need the local currency in order to purchase domestic securities and assets. It is expected that 16.25 billion CAD were purchased during June, down from 18.89 billion CAD in May.

The Loonie started the week on a weak note as it slid down against the Greenback, causing the USD/CAD to climb towards the 1.1100 mark. Commodity prices dipped yesterday on economic recovery doubts, suggesting that risk appetite is thawing out.

The economic calendar was relatively light yesterday, with no reports from Canada. Risk sentiment was quite possibly the main driver of Monday’s price action as the effect of last Friday’s drop in US consumer confidence carried over to this week. Today’s economic schedule is slightly more than jampacked than yesterday’s so we might find some sentiment-shifting news here and there…

Data on Canada’s foreign securities purchases are due 1:30 pm GMT. The total value of purchases is expected to be at 13.55 billion CAD in June. Economic data from its North American neighbor include building permits, PPI, and housing starts. Both building permits and housing starts are projected to post marginal improvements from last month while producer prices are expected to slide down by 0.2%. If the actual data fails to meet expectations, then risk aversion could extend its stay in the currency market.

Similar to the other high yielding currencies, the CAD was one up against the JPY and the USD in yesterday�s trading. Risk appetite emerged from hiding during the US session which consequently buoyed the high yielders like the CAD.

Canada�s foreign securities purchases came in below expectations at C$10.51 billion following the previous period�s C$18.78 billion score. The account was expected to come in at C$13.55 billion. Despite this and the worse-than-expected results in the US housing starts, building permits and PPI accounts, the US capitals markets, particularly the stock market, managed to keep themselves above water pulling the high yielding currencies like the CAD along.

Today (11:00 am GMT), Canada� CPI and leading index for the month of July will be reported. The annualized headline CPI is seen to fall further to -0.8% from -0.3% while the core CPI is expected to remain flat at 1.9%. Its leading index, on the other hand, is projected to rise to 0.2% after falling by 0.1% in June.

The CAD may end the day in neutral given the mixed expected results in the upcoming reports and the light economic event in the US.

And the CAD continues its fight against the USD for the second trading session in a row! Led by the pointed decline in oil inventories and the sharp rise in oil prices, the USDCAD closed the US session at 1.0960 from its Asian open at 1.1016.

Canada�s leading index for July also gave out better-than-expected results, which provided further support for CAD buying. The index is made up of ten economic indicators, some previously released, to predict the direction of the country�s economy over the next few months. It came out at 0.4% versus the 0.2% consensus.

July�s ugly headline Consumer Price Index (CPI), which printed -0.3% instead of -0.2%, proved to be of little concern to traders. The core CPI, which excludes prices of highly volatile items such as food and gas, also came out worse than expected. It reported that overall price of goods and services remained flat and didn�t show the 0.1% economists were anticipating. Inflation is at its lowest level in 56 years. Still, despite terrible inflation numbers, deflation won�t be a pressing concern for the nation as the prime cause for the CPI decline was lower gas prices. Experts say that gas prices are due to increase within the next month, which would help overall CPI numbers.

For today, expect to see Canada�s Wholesale Sales at 12:30 pm GMT. The forecast is that sales remained flat June-on-May. If the forecast holds, it would be an improvement from last reporting period�s 0.3% decline in sales.

The Loonie continued its hard hitting ways, cornering the dollar and winning the round. The CAD was boosted by a rise in stocks. The USDCAD score closed at 1.0877. Will the CAD come out of it�s corner swinging away? Or will the USD muster enough strength to turn the tide?

A report last night indicated that wholesale sales rose in June by 0.6% from May, marking the first increase in 9 months. The increase was attributed to the rise in automobile and food products sales. It seems that large cut down inventories has brought inventory levels to a minimum, allowing companies to start ordering once again.

Over the weekend, we have Bank of Canada Governor Mark Carney scheduled to speak at the Jackson Hole Symposium. There will be several central bankers, economists, finance ministers and other financial market participants at the symposium. I�ll be on the lookout for any comments regarding the economic situation � I�ll be sure to let you know what I hear on Monday. Good luck trading today and enjoy your weekend!