Daily Economic Commentary: Canada

Last Friday was marked by some comdoll domination in the markets! Prices of oil and gold climbed as US home sales data pumped up risk tolerance. Would this CAD rally continue after Canadian retail sales are released today?

Retail sales data from Canada are set for release at 12:30 pm GMT today. Sales at the retail level are expected to hold steady from the previous month, which saw a 1.2% uptick. Core retail sales are projected to be up by 0.2% in July. If the actual data beats expectations, then the CAD could have a pretty bullish week ahead.

After this high-impact retail sales report, things cool down for the CAD until the last day of the week. On Friday, Canada is set to report is current account for the second quarter. The current account deficit is expected to widen from 9.1 billion CAD to 11.9 billion CAD. The raw material price index is also due on this day. Prices of raw materials are projected to drop by 4.9% after posting a 6.2% uptick in the previous month. This index is important for the export-oriented Canadian economy.

The CAD took last week by a landslide and it looks like it is set-up to take this week�s round once more. Yesterday, it got a push yet again vis-a-vis the JPY and the USD. Can the CAD keep this up? Let us see.

Canada�s headline retail sales for the month of June soared above expecations at 1.0%. It was only seen to remain flat after rising by 1.1% in May. Its core retail sales jumped by 1.0% as well after gaining by 0.6% in the month prior. The advance in the figures indicate that the economy is indeed stabilizing and is now transitioning over the recovery stage.

The CAD rose for its fifth straight day due to the surprise results.

Bank of Canada Deputy Governor Timothy Lane will issue a speech named “The Canadian Economy Beyond the Recession” at the Canadian Association for Business Economics, in Kingston today at 5:00 pm GMT. Market participants will look into his speech for clues about the bank�s outlook and possible future monetary policy actions regarding the CAD’s short term direction. Lane could highlight the recent developments in retail sales which could further propel the CAD upwards.

The CAD attempted to rally against the USD early during the Asian session yesterday but move failed follow through when the US session came rolling along. Also, better-than-expected data that came out of the US initially caused some CAD buying but that too fizzled out.

The loss in the CAD�s value has its roots on Bank of Canada Deputy Governor Timothy Lane�s comments on the CAD�s soaring value versus the USD. He said that the strength of the CAD is putting some important risk on the economy and that possibility of an expansion of the central bank�s quantitative easing measures shouldn�t be discounted yet. A bit of verbal intervention right there… I guess we�ll just have to wait and see what the bank has to say about this issue (or threat, maybe?) on its next interest rate decision come September 10.

We�ve got a light economic calendar today as only StatCan�s report on quarterly corporate profits is due. During the first quarter of 2009, profits fell 11.8%, �less bad� than the quarter prior. We might see another �less bad� figure as the underlying trend in profits seems to be up.

The USDCAD remained steady throughout most of the day, before zooming up in the US session. The USD benefited from speculation regarding Chinese growth. The pair closed trading at 1.0975.

The StatCan�s report showed that corporate profits fell by 6.4% in the 2nd quarter, showing a nice improvement over the 1st quarter�s showing of 11.8%. Still, no reaction in the markets, as trading was more heavily increased by the rise of the dollar across the board and crude oil prices falling.

With no economic data coming out from Canada today, will data from other countries continue this run to risk aversion? Or was price action over the past couple days just a pullback? Ooooh. My FX sense are tingling…

Tomorrow, we�ve got some inflation data on deck, with the raw materials and industrial price indexes due at 12:30 pm GMT. Also, the Current Account will be released at that time.

Oil prices jumped by 2% yesterday and the Loonie decided to hop in on the action. Equities and higher-yielding currencies surged as risk-taking was seen all over the markets.

The Loonie ends the week with a couple of economic reports on the table. Its current account balance is set for release at 12:30 pm GMT. The current account balance has been negative for the past two quarters after it posted a deficit of 9.1 billion CAD in the first quarter of 2009. The deficit is expected to widen to 11.9 billion CAD in the second quarter.

The raw materials price index is also set for release at 12:30 pm GMT today. This is an important report for the commodity-oriented, export-driven Canadian economy. After rising by 6.2% last month, the RMPI is predicted to fall by 4.9% this time. If the actual figure is worse than expected, the CAD could be hard-pressed to return its gains from yesterday’s rally.

The CAD was just stuck within a range in last week�s trading. The resistance at 1.1000 (against the USD) held nicely. Will the CAD continue to move sideways this week? We might see it move higher today if the economy is able to register some positive GDP numbers.

Canada�s economy is expected to have expanded by 0.2% during the second quarter after falling by 0.5% in the previous period. with its latest retail sales and trade balance showing some better-than-expected results, its probable that the economy indeed expended. Any advance in the economy�s broad measure can further lift the CAD.

On September 4, Canada�s calendar will be hectic with the release of the employment change, unemployment rate, and Ivey PMI. Canada�s labor market is still seen to weaken a little bit with the unemployment rate anticipated to grow to 9.5% from 9.4%. Its Ivey PMI, however, is projected to improve to 54.3 from 51.8. We might see some volatility on the CAD during the day given the mixed expectations in the figures.

Much like other major currency pairs the USDCAD�s movement was range bound. It opened the week at 1.0916 and closed the US session at 1.0948, a small 32 pip gain.

Canada�s GDP report that came out yesterday showed that the nation�s economy grew only 0.1%, lower than the 0.2% growth expected. This was the first positive reading in eleven months indicating recovery will be slow. Despite the forecast on Canada�s GDP being off-target, the CAD was able to recuperate all of the losses it sustained during the Asian session.

Canada�s economic cupboard will be completely empty until Thursday so keep an eye out on those oil prices and data coming out of other countries as they could hold the key in determining the CAD�s performance over the next few days.

The USDCAD rose for the 3rd day in a row, as a US equities and oil prices fell during the US session yesterday. The pair ended trading at 1.1040. Could today be the day that the pair finally breaks past 1.1100?

Nothing coming out from Canada over the next few days. On Friday, employment data will be released at 11:00 am GMT. It is expected that the unemployment rate will reach 8.8%. Also scheduled is the Ivey PMI report at 2:00 pm GMT. The index surveys purchasing managers and measures their sentiments on the economy on a scale where 50 separates industry expansion and contraction. Forecasts are that the index will increase from July�s reading of 51.8 to a score of 54.3.

In the mean time, look out for more news coming out from the US. Be wary of changes in oil prices. Crude oil is now trading below $70 � I wish I didn�t gas my car last week.

Price action was a bit slow yesterday as the Loonie stubbornly refused to budge. Don’t you think that’s a bit odd, considering gold prices surged by more than $20?

Gold prices surged to $979.15, its highest level since June. This should be bullish for commodity currencies such as the CAD but yesterday’s price consolidation shows that traders could be holding back for something bigger. Indeed, a bunch of market-moving reports are on schedule for the last two days of the week. Traders could be staying cautious ahead of today’s US weekly unemployment claims and ISM non-manufacturing PMI, which could bring a few surprises to the table. No economic reports are due from Canada today.

On Friday, both Canada and the US are set to release employment data and this should pump up the volatility in the currency markets. Also, Canada will be releasing its Ivey PMI, which is projected to rise from 51.8 to 54.3. With these economic data in store for the CAD, things are bound to get a little more exciting…

Without any economic updates to direct its movement, the CAD ended yesterday�s session mixed against the other major currencies. Today will be different, though, given several top tier reports scheduled in Canada later.

Payrolls in Canada for the month of August are expected to decline at a slower rate. Only about 12,400 lay-offs are seen in the period after the 44,500 lost in July. Canada�s unemployment rate, however, is anticipated to increase to 8.7% from 8.6%. Canada�s employment reports will be due at 11:00 am GMT.

Also set for release in Canada later at 2:00 pm GMT is the Ivey PMI. The index is projected to inch higher to 54.3 from 51.8. A reading above 50.0 already indicates expansion across the different industries in Canada. The CAD may get another positive nudge given a rise in the index.

The CAD staged a magnificent performance as the trading week came to a close last Friday. The USDCAD pair opened Asia at 1.1034 and just travelled southwards without looking back before finding support at 1.0824. The CAD finished the week strongly versus the USD at 1.0869.

It seems that the primary cause of the move downwards was increased risk appetite among investors when better-than-expected data came out of both the US and Canada.

The Canadian monthly report on employment showed that 27,100 jobs were added in August. Quite an improvement given that economists were predicting 12,400 people would lose jobs. However, the message sent by the employment report is mixed as digging deeper into the report would reveal that the nation�s jobless rate increased to 8.7% from 8.6% the month prior.

The Ivey PMI also reported unexpected results. It printed a reading of 55.7, much higher than the 54.3 figure anticipated. The PMI tries to assess whether the manufacturing industry is expanding or contracting by using a 0-100 boom/bust scale. A reading above base line 50 means that the manufacturing industry is growing.

Canadian banks will be celebrating Labor Day today so economic data would be non-existent. Looking ahead, expect the Bank of Canada�s to announce its interest rate decision on Thursday. The BoC would probably keep rates steady at 0.25% once again as Canada�s economic conditions improve.

The CAD got another sucker punch in against the USD yesterday, as the CAD staged another big gain yesterday. Despite bank holidays for both the US and Canada, USDCAD trading hit a low of 1.0741, and closed at 1.0773.

This week, we’ve got some Canadian housing data on deck, with data on building permits (12:30 pm GMT) and housing starts (Wednesday, 12:15 pm GMT) due. Both reports are expected to show slightly better conditions for the Canadian housing market.

The impact of those reports however, may be minimal, with the Bank of Canada releasing its interest rate decision later this week. BOC Governor Mark Carney and his posse are expected to keep the base rate at 0.25%, as they want to keep their focus on recovery. The BOC does not want to take off any economic stimulus unless there are clearer signs of economic recovery.

The one thing I’d be more mindful of is anything that has to do with currency intervention by the BOC. Word on the street is that the BOC feels that a strong Loonie may end up hurting the Canadian economy. That being said… could we be in for a surprise this Thursday?

USD weakness? Risk appetite? Rising oil prices? It seems like these weren’t enough to boost the CAD. The drop in Canada’s building permits took center stage and prevented the CAD from participating in the commodity rally yesterday.

Building permits unexpectedly fell by 11.4% in July, its first drop in three months. Analysts projected a 0.5% uptick in building permits but were disappointed to find out that the civic workers’ strike in Toronto caused a massive decline in the total number of building permits issued. The strike was quickly dismissed as an anomaly to the current economic developments but we’ll just have to wait and see if any negative repercussions carry on until next month…

For today, we have housing starts on the docket. That’s due at 12:15 pm GMT. Housing starts are expected to be up by 138K in August after posting a 134K increase in July. If the actual figure prints better than the consensus, then the CAD could jump in on the comdoll rally… Or is it too late?

�-----.� That�s exactly how the CAD has been trading this week � flat. The CAD lost its steam and is now trading sideways versus the USD after gaining ground during the first leg of September. Though, this may change some time soon with the interest rate decision of the Bank of Canada later today.

In yesterday�s report, Canada�s housing starts jumped by 12. 1% to 150,000 units in August. It was only seen to grow to 138,000 from the previous period�s 134,000 mark. The rebound in the housing activity in August adds further proof that the Canadian housing industry is on its way to recovery. Low interest rates and home prices are propping up activity in the sector which can give a big help in the overall economy.

The CAD rose following the release. Though, it remained to be constrained within a range.

Today will be a big day in Canada with the interest decision of the BOC. The bank is expected to keep its interest rate 0.25%. Any indication, however, of any rate hike in the future would uplift the CAD. Such is possible given Canada�s improving economic state. If nothing is cited, the CAD may just continue with its sideways movement. It may even drop since leaving the rate as is would mean that conditions are still a bit fragile.

The USDCAD was taken for a ride as it lost against most major currencies prior the BoC�s interest rate decision yesterday. Still, the CAD managed to regain all its lost ground versus the USD after the report and even managed to post some minor gains before the US trading session ended.

The statement which accompanied the BoC�s interest rate decision showed the bank is starting to get really concerned about their domestic currency�s strength versus the USD. If this keeps up, it could eventually disrupt the economy�s journey to recovery. The BoC decided to keep interest rates unchanged at 0.5%. By the way, with all these interest rate decisions this week, I decided to do a short entry on the topic in my blog. Go take a look as it could inform you more on this matter!

Meanwhile, Canada�s trade balance deficit in July was reported to have widened to 1.4 billion dollars from being flat the month prior. Economists were only expecting a 100 million dollar deficit. You see, the trade balance measures the difference in total value of exported and imported goods. A negative trade balance means that more goods were imported than exported.

On tap today is Statistics Canada�s new housing price index for July at 12:30 pm GMT. The index measures the average change of selling price new houses month-on-month. The median forecast currently stands at -0.1%, indicating that economists believe that the decline in house prices have eased slightly.

The USDCAD went on a hiking trip on Friday, as the pair went up and down the Rockies. The pair shot down early in the US session before rallying late to close the week. The pair eventually closed a bit higher, at 1.0787.

On Friday, the New Housing Price Index � an index that measures the change in the selling prices of new homes � was released. The report printed that housing prices rose by 0.3% in the month of July. It seems that this boosted the CAD temporarily, as it rallied following the release.

Tomorrow at 1:30 pm GMT, Bank of Canada Deputy Governor John Murray will be delivering a speech entitled �Canada and the Economic Crisis : Our Performance and Near-Term Prospects�. I�m anxious to see whether we will see some threats of currency intervention. Remember, the BOC has expressed fear that the CAD�s strong appreciation may hurt the economy. BOC officials may keep throwing some verbal intervention to keep it from rising.

Commodity currencies returned their gains to the safe-havens USD and JPY yesterday as trade tensions materialized between the US and China. Despite Canada’s better-than-expected capacity utilization, the USDCAD climbed to a high of 1.0929 in Monday’s trading.

Canada’s capacity utilization beat the consensus at 65.8% when it landed at 67.4% for the quarter. However, this marks the indicator’s fifth quarterly decline as it fell from the previous quarter’s 70.2% reading.

Up ahead, we have labor productivity and new motor vehicle sales figures on schedule. Labor productivity is expected to be up by 0.4% for the quarter after previously posting a 0.3% uptick. New motor vehicle sales are expecting to see a 5.1% increase in July. Sales of new vehicles slid down by 0.6% in June.

Several reports are due from Canada’s North American neighbor today and these could pump up the volatility in the markets. US retail sales and PPI data are on tap, with both projected to post improvements from the previous readings. If these indicators come in better-than-expected then we could see another round of risk-taking, allowing the commodity currencies to recover some of yesterday’s losses.

Yesterday was your lucky day if you�re one of those who went long on the Loonie and short on the USD. Like the others, the USDCAD was under the radar as it just moved sideways for the most part of the day. It went on the limelight only during the US session when the pair lost as much as 150 pips!

Canada�s labor productivity for the second quarter remained flat against expectations for a 0.4% increase. A fall in a worker’s productivity can be translated to a rise in their pay. Any increase in the workers� wages is usually passed on to consumers. Hence, a drop in productivity can generally be bullish for the CAD.

New motor vehicles sales in July surprisingly rose as well by 5.3% after losing by 0.5% in June. It was only seen to gain by 5.1%. A hike in durable goods, like vehicles, is a sign of consumer confidence as it indicates that consumers are secured about their future financial situation.

In the mean time, the US recorded some better-than-expected figures in its latest retail sales and PPI accounts. Investors once again sold off the USD and bought up the higher yielding currencies like the CAD. The Loonie got some further lift later when Fed Chairman Bernanke stated that the US is �very likely� out of the recession.

Today (12:30 pm GMT), Canada�s manufacturing shipments are due. Sales are seen to expand by more by 2.4% after already gaining by 1.9% in the previous month. US�s CPI numbers will likewise be released at the same time. The headline figure is seen to grow by 0.3% after coming in flat in August.

The USDCAD may sink once again given the anticipated expansion in both accounts.

It seems that oil remains to be the primary determinant of the CAD�s value in the market. The CAD, a currency considered to have a tight link to commodity prices, set a six-week high against the USD as oil prices rose in yesterday�s trading session.

The jump in manufacturing sales for July also provided CAD support. It showed that sales rose by 5.5% July-on-June, almost double the 2.4% forecast.

The CPI, which is the primary measure of a country�s inflation rate, is predicted to print a gain of 0.2%. The core CPI, which excludes the prices of volatile items such as oil and automobiles, would probably post a 0.1% increase. Meanwhile, the leading index is expected to improve to 0.5% from 0.4% the month prior. The leading index is used to determine the general direction of the economy by using the combined reading of 10 leading indicators - some previously released - associated with the following: employment, manufacturing, new orders, consumer sentiment, housing, equity prices, interest rates and cash supply.

If these reports come out better-than-forecast, we might see further CAD buying, especially against the USD. In addition, it would add evidence that Canada is indeed emerging from its worst post-war recession.

And this is why they call it the Great White North! The Canadian dollar hit a new high against the USD, as the USDCAD pair hit 1.0600 during intraday trading yesterday. In case you didn’t know, this is a new yearly high for the CAD!!

The consumer price index released yesterday showed that consumer prices have fallen by 0.8% from a year ago, worse than the expected 0.7% figure. On a monthly basis, prices remained steady after it was expected that they would rise by 0.2% from July to August. Core CPI - which excludes 8 of the most volatile items - fell by 1.6% on an annualized basis. Take note, economists normally use core data to predict future trends in inflation.

The Bank of Canada has said that they expect inflation to remain below its 2.0% target until midway through 2011. There is some speculation that if inflation shows signs of decelerating further in the future, the BOC may cut its base rate further. Seeing as how the rate is now at 0.25%, it’ll be interesting to see if a rate cut is actually possible.

The leading index - which is designed to predict the direction of the economy based on 10 economic indicators - surged in August, rising by 1.1%. It was expected to increase by only 0.5%. The sharp increase was attributed to a pick up in the housing industry and consumer spending. More signs of a recovery eh?

Later today, we’ve got wholesale sales data that will be released at 12:30 pm GMT. It is expected to print a 0.7% increase in sales during the month of July. With no economic data coming out from the US, could this have the potential to be a market mover if it comes in much better than expected?

Now that the CAD has hit a new yearly high, I interested to see whether all these “signs of recovery” will push it even higher. I’m even more interested to see whether the BOC will finally act on all its threats of currency intervention. Remember, the BOC has time and again said that a strong Loonie could hurt Canada’s recovery. Is the BOC just all talk? With the 3rd quarter ending soon, let’s see how this plays out over the next couple of weeks.