Daily Economic Commentary: Canada

Trading Discussion News and Economy
62

Even if crude oil prices stalled last Friday, the Loonie gained against the Greenback as Canadian wholesale sales posted an unexpected 2.8% rise in July. Canada has a bunch of high-impact economic reports lined up for the first few days of the week and it looks like the Loonie is off to an exciting start!

For today, we have data on foreign securities purchases on tap. Purchases of Canadian securities are expected to slide down from 10.51 billion CAD to 7.76 billion CAD in July. However, if the actual figure shows an upside surprise, then demand for the CAD could surge and cause it to rally. The actual figure is due 12:30 pm GMT.

Retail sales data are in store for Tuesday. Recall that we just saw a notable improvement in wholesale sales last week and, being a leading indicator for retail sales, it hints at an upside surprise in retail sales as well. If you weren’t tuned in last Friday, well, let me get you up to speed… Wholesale sales jumped three times more than expected as it rose by 2.8%, which is a huge leap from the previous 0.8% increase. The consensus for retail sales is a 0.5% uptick while core retail sales are projected to be up by 0.1%. With a dramatic improvement in retail sales in the cards, the Loonie is poised to stage a strong rally… possibly after the release of the retail sales report at 12:30 am GMT.

The action cools down on Wednesday, with only a speech by BOC Deputy Governor David Longworth on tap. His comments could contain hints on the next steps that the central bank could take in terms of its monetary policy. He could also highlight the recent improvements in the Canadian economy and thus boost the CAD. His speech at the Chamber of Commerce is scheduled at 11:35 am GMT.

The Loonie takes a break for the last couple of days of the week since both Thursday and Friday are report-free. The USDCAD could move to the usual rhythm of commodity prices and shifts in risk sentiment.

63

The Loonie started the week on a bad footing and slid against the Greenback for the third day in a row. The USDCAD, after marking its yearly low at 1.0596 last week, retreated back to close yesterday at 1.0774.

Foreign securities purchases of Canadian financial assets significantly dropped to C$350 million in July from C$10.51 billion in June. The account was only expected to cool off to C$7.76 billion. Foreign securities purchases measure the total value of domestic stocks, bonds, and money-market assets purchased by foreigners. Any drop in the account also translates to similar slide in the demand for the CAD since foreigners need to use CAD to purchases Canadian assets. Hence, any decline in the figure is usually bearish for the Loonie.

The CAD lost support following the report.

On tap today at 12:30 pm GMT is the release of the Canadian retail sales figures in July. Core retail sales are seen to slow to 0.1% after rising by 1.0% in the month prior. The headline account is also projected to dim to 0.8% from 1.0%. The CAD may continue to slide further or range at best given the projections.

64

The Loonie took back all of its losses versus the Greenback from Monday�s trading session despite the report on retail sales showing dismal results. It seems that spending remains subdued as the country recovers from the world�s worst post-war recession.

Contrary to the 0.8% forecast, retail sales in August fell 0.6% despite record-low borrowing costs. The core figure, which excludes vehicle sales, printed a 0.8% decline too. The significant drop in sales was mainly from lower sales of gas at self-service stations, the report showed. The decline in food and beverage sales also contributed to the fall in sales.

No economic data due for release today but a talk by BoC Deputy Governor David Longworth is scheduled at 11:35 am GMT. Speeches by central bank members are watched by investors as they could provide some clues as to how the bank sees the economy.

65

Lots of up and down movement on the Loonie yesterday, although ranges pretty much held. The USDCAD closed higher at 1.0753, as we saw oil prices fall below $69 per barrel.

BOC Deputy Governor David Longworth said that the Bank of Canada will cut back on the amount of emergency liquidity they will be offering. He said that recent developments in the credit markets justified such a move. Some analysts say that this could be the start of Canada�s exit strategy…

Longworth also said that a strong CAD may curb growth for the Canadian economy. We�ve been hearing a lot of verbal threats by the BOC regarding this matter, as they’ve said that they could implement currency intervention if the CAD is too strong. Given how weak the USD has been as of late, I really wonder when we�ll actually see any follow through if the CAD�s appreciation persists.

Crude oil trading dipped below $69 per barrel yesterday, as a report indicated that crude oil inventories in the US rose by 2.86 billion barrels. It was initially forecasted that there would be a drop of 1.4 million barrels. This marked the biggest drop in 5 weeks. With no other economic reports coming out this week, could oil prices set the tone for CAD trading for the rest of the week?

66

The USDCAD broke free from consolidation mode and sprinted towards the 1.0900 mark yesterday. While the USD staged a strong rally, the CAD and its comdoll allies were unable to draw strength from gold and oil prices.

The CAD gave back its recent gains to the USD as the Fed announced that it would scale back some of its emergency lending programs. Traders took this as a bullish sign for the US economy and upped their long positions on the USD. Additionally, BOC Governor Mark Carney’s dovish comments about their economy could have provided more downward pressure for the CAD. He said that an economic recovery would not be “self-sustainable” while Canadian Finance Minister Jim Flaherty proposed an expansion of their mortgage buyback program to 125 billion CAD. It was clearly not a good day for the Loonie…

Canada has no economic reports on today’s agenda, which means that price action of the USDCAD could be largely influenced by changes in risk sentiment spurred by US economic reports. Also today, the G20 will be releasing their final statement. More volatility could be seen especially if we see some surprises in the G20 statement. It’s time to lock in more pips for the week, my forex friends! Good luck!

67

The USD/CAD pair�s price action last Friday was muted as no economic data came out of Canada. The pair attempted to rally to 1.1000 but fell a few pips short. Looking ahead, the price of oil will be an important factor in determining the direction of the CAD�s value.

No economic data today but expect to see the country�s monthly GDP report tomorrow on Wednesday at 12:30 pm GMT. The country is expanded once again in July, this time by 0.4%. It first officially came out of the recession last June, when it posted that its economy grew by 0.1% after shrinking for eight consecutive months.

68

It seems the Loonie managed to fight back and retrace some of its losses from week before in yesterday’s trading session. The USDCAD pair opened the day at 1.0910 and closed at 1.0870 by the end of the US session.

In other news, Bank of Canada Governor Mark Carney did a bit of jawboning in his talk yesterday as he said that the Loonie�s strength could pose some serious threat to growth. In addition, Carney indicated once again that record-low interest rates in Canada would probably remain unchanged until the middle of 2010.

No economic data up for release today but expect to see Canada�s monthly GDP report tomorrow at 12:30 pm GMT.

69

The CAD gained against the USD for the 2nd day in a row. It seems that USD buyers have lost some steam after gaining some support last week. The pair closed the day at 1.0852.

We could be in for a wild ride during the US session, as GDP m/m report will be released at 12:30 pm GMT. Canadian GDP is projected to have risen by 0.4% in July. If the report comes in line with this projection, we could see a further boost in the CAD.

Also scheduled for release at 12:30 pm GMT are the industrial product and raw material price indexes. Both indexes are expected to show an increases in prices in the past month.

Lastly, could we hear more catcalls from Canadian officials regarding the state of the Loonie? Remember, the BOC has expressed concern that a strong CAD may hurt recovery� Just something to take note of�

Also, be wary that the ADP non-farm employment change and crude oil inventory data will be released in the US today. These could both have a significant impact on the CAD � so watch out!

70

The Canadian economy stalled in July as its monthly GDP was unchanged from the previous month. Even so, the Loonie was able to rally and bring the USDCAD to a low of 1.0672 yesterday.

The flat GDP growth in July resulted from weak activity in the mining sector offsetting the rebound in the automobile sector. Meanwhile, Canada’s industrial product and raw materials prices rose by 0.5% and 3.7% in August, boosted by rising gas and metal prices.

No economic reports are due from Canada until the end of the week but economic reports from the US would likely affect the price action of the USDCAD. For today, we have initial jobless claims, ISM manufacturing PMI, and pending home sales on the US schedule. Also, US Fed Chairman Ben Bernanke is scheduled to deliver a speech today and you know how the markets usually go wild when the Big Ben talks!

71

Yesterday was one of those days that long position holders on the Loonie would want to forget. The CAD took a back seat against ALL the other major currencies in yesterday�s price action due to risk aversion, particularly in the US capitals markets.

Canada was idle yesterday in terms of economic reports. The lack of economic updates in the country, however, did not save the Loonie from being sold off. The CAD lost support versus all the other majors given the broad-based sell off in the equities markets. Buyers became wary about today�s employment report in the US and stayed in sidelines in the mean time.

Canada will once again be report-free today. The CAD would most likely be constrained within a range ahead of the NFP report today. Though, we should expect some volatility to occur right before and after of its release.

72

The CAD initially lost ground to the USD in Friday’s trading session but managed to fight back when worse-than-expected results from the US non-farm payrolls came out. The USD/CAD closed Friday at 1.0825, slightly lower than its open at 1.0846.

Data last Friday was non-existent but Canada’s economic cupboard this week is packed!

On Tuesday, the building permits report for August and the Ivey PMI for September are due. The report on building permits, which is used by investors as a leading indicator for the construction industry, is expected to show a growth of 2.3%, opposite the -11.4% figure received the previous reporting period. Meanwhile, the Ivey PMI, which assesses whether the manufacturing industry is expanding or shrinking, would probably print a reading of 56.9. A reading above 50 means the manufacturing sector is growing.

On Friday, expect to see Canada’s unemployment report. Economists said that the country’s jobless rate probably edged up to 8.8% in September from 8.7% the month prior. A total of 6,700 jobs were probably lost.

73

After breaking ahead during early in the trading day, CAD buying cooled off and went ice cold. The CAD did however, benefit late in the US session, as the dollar sold off. The USDCAD ultimately closed the day at 1.0700.

We could see more movement with CAD trading today, as building permits data and the Ivey PMI report will be released at 12:30 pm GMT and 2:00 pm GMT. Building permits is projected to have picked up by 4.5% from July to August. The Ivey PMI report, which surveys business managers on their thoughts of current business conditions, is expected to print a reading of 56.6, a slight improvement over the previous month’s score of 55.7. This would indicate that business conditions are improving in Canada.

It seems that risk aversion is waning down, which bodes well for commodity currencies like the CAD. Still, be on the lookout for shifts in sentiment as traders position themselves before earnings reports are released later this week.

74

Commodity currencies (AUD, CAD, and NZD) were having the time of their lives yesterday as they all hit new highs against the USD. Aside from getting a boost from the RBA rate hike and the rise in gold prices, sentiment for the CAD turned very bullish as Canada unveiled its own set of upbeat economic data.

Building permits surged by 7.2% in August, beating the consensus of a 4.5% uptick. This reflects a strong rebound in Canada’s construction sector, which posted a 10.0% slump in building permits last July. Still, July’s downturn in building permits was considered a fluke since it was caused by the construction workers’ strike in Toronto. We’ll probably have to wait another month to conclude whether Canada’s construction activity has really recovered…

Another optimistic economic report was the Ivey PMI, which leaped from 55.7 to 61.7 in September. This index, which measures activity in Canada’s manufacturing sector, surpassed the consensus at 56.6. This partially reduces the BOC’s fear that the strength of the CAD could hurt their economy. Hmm, now that their comdoll buddy, the AUD, has enjoyed a rate hike, would the BOC soon follow suit?

No economic reports are due from Canada today. If commodity prices continue to surge today, then the CAD could hit yet another yearly high against the USD. We’ll just have to wait and see…

75

The USDCAD pair retraced back to 1.0653 after logging a new yearly low yesterday at 1.0528. This pullback, however, was cut short by the 1.0650 level. Now, the pair is on its way down again. Would it sail away to yet another uncharted territory?

Risk appetite persisted during the Asia session which pushed the USDCAD to its new yearly low at 1.0528. However, without much economic catalyst in both Canada and the US, investors probably covered some of their short positions on the pair and took profits. The pair eventually closed the session at 1.0623.

Today (12:15 pm GMT), Canada’s housing starts is expected to log in a total of 147,000 units in September from 151,000 that were done during the previous month. The account is a complement to the recent building permits release. The better-than-expected 7.2% increase in total value of new building permits issued for August may lead to a positive upside in the number of new residential buildings that began construction in September.

The Loonie may get another boost if such is the case.

76

The Loonie, like its fellow commodity-based currencies, set another yearly high against the dollar yesterday. The USD/CAD pair traded as low as 1.0506 before giving up some ground and ending the US session at 1.0523.

The report on housing starts released yesterday also shared the same optimistic tone. It showed that 150,000 (annualized number) residential buildings started construction in September, slightly higher than the 147,000 forecast.

A bunch of important economic data is due today so we might see some fireworks come the US session.

Firstly, Stastistics Canada will be releasing its employment situation report 11 am GMT. The forecast is that 4,900 net jobs were added while joblessness in the country increased to 8.8% from 8.7% in September. Secondly, there’s the August trade balance at 12:30 pm GMT. Economists expect that the country’s trade balance deficit decreased to 900 million from 1.4 billion the month prior. Lastly, the Bank of Canada will release its business outlook survey at 2:30 pm GMT. The survey asks businesses on their assessment of the economy.

The Loonie has been extremely powerful as of late so if any of these reports surprise with better-than-expected figures, especially the unemployment rate, we could see the currency make another set of yearly highs against the dollar.

77

There’s just no stopping the CAD! The CAD continues to set new highs against the USD, with the pair closing last week at 1.0444. With the pair reaching lows it hadn’t touched in a year, how much further can the pair go?

The Loonie got a nice boost from employment data that was released on Friday, as the data posted a nice surprise to the upside. In September, 30,600 new jobs were created! This was a lot better than the expected 5,000 increase and a nice follow-up to the 27,100 in August. This brought the unemployment rate down to 8.4% after it sat at 8.6% last month.

In other news, the trade deficit grew to $1.99 billion CAD, a large rise from the $1.32 billion CAD figure in July. The increase in the deficit was attributed to a 5.1% decline in exports. Part of the reason why exports have fallen is said to be because of the fast appreciation of the Loonie.

As I’ve said in the past, the Bank of Canada has tried in vain to talk down the CAD, but to no avail. With data now available for the BOC to point to, the question is whether or not they will put any action behind those words.

Late on Friday, the BOC release the results of its outlook surveys. The results revealed that Canadian business are more upbeat over the state of the economy. The surveys indicated that business managers are optimistic over future sales and financing, but still want to remain cautious and expect recovery to be slow.

Not much high impacts news coming in this week. Tomorrow, we’ve got the new housing price index due at 1:30 pm GMT. Projections are for a 0.2% increase in the price of new homes during the month of August.

Also, later in the week, we’ve got manufacturing sales (Thursday) and CPI reports (Friday) coming in. Aside from that, nothing else is due. I’d be on the lookout for comments from the BOC, especially regarding the value of the CAD. I’d also keep an eye out for earnings reports and oil trading as potential market movers for CAD trading.

78

If I tell you that the Loonie hit another new yearly high against the greenback, would you still be surprised? The loonie has been surging for the past week and it seems that the rally is unstoppable!

Despite the lack of economic reports from both the US and Canada, the USDCAD dipped to a low of 1.0318. Commodity prices were on a roll yesterday, as oil prices climbed by almost 2% while gold prices hit a fresh yearly high, thus boosting the Loonie.

Today, Canada has its NHPI or new housing price index on the agenda. An increase of 0.2% is expected to follow last July’s 0.3% uptick in new home prices. Meanwhile, the US is not expecting any high impact reports for the next 24 hours so there might not be any sudden shifts in sentiment… but then again, you never know…

79

The Loonie marked a fresh yearly high against the greenback in yesterday’s trading. The pair, though, ended mixed as investors anticipate the earnings reports of some giant firms in the US today. The USDCAD fell to 1.0267 before closing higher at 1.0378.

Canada’s NHPI or new housing price index rose marginally by 0.1% (0.2% consensus) in August. Still, the recent price listings are 3.1% lower than from a year ago. Nonetheless, the increase in house prices adds to signs of a recovering economy. The Loonie, however, lost some support following the report given the less-than-stellar gain.

Despite a weaker dollar and a strong third quarter profits of Johnson and Johnson, the USDCAD retraced after registering a new yearly high. Investors may continue to stay in the sidelines to wait for the release of the earnings reports of several high-profile firms like JPMorgan Chase, Goldman Sachs, IBM, Google, GE, and Bank of America later today. The USDCAD could finally break below the 1.0300 support if the reports log in some positive numbers.

80

Oil prices edged up higher again in yesterday’s trading session which, consequently, helped the CAD hit another set of yearly highs versus the USD. The USD/CAD pair closed the US session at 1.0261, a whopping 100 lower pips from its Asian open at 1.0363.

On tap today is Canada’s report on manufacturing sales at 12:30 pm GMT. According to estimates, manufacturing sales for August dropped by 1% after showing a 5.5% rise in July. The markets tend to ignore the report though, as actual results tend to be off-target from forecast most of the time.

A better gauge of price action would be the price of oil. If oil prices start hitting monthly highs again, we might see the CAD move higher against the USD today again…

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And the CAD finally takes a hit! The USDCAD reversed after approaching the 1.0200 price area, and finished the day at 1.0346. Is this the start of a potential reversal? Or will traders take this as an opportunity to buy the CAD once again?

A report released yesterday indicated that manufacturing sales fell greater than expected in August. Manufacturing sales fell by 2.1%, after it was projected to fall by only 1.0%. The sharp decline was attributed to a fall in aerospace and automobile production. The release of the report hurt the CAD, as it fell following the release of the report.

Later today, we’ve got the CPI m/m reports coming out. Inflation is expected to rise slightly for both the headline and core accounts to 0.2% and 0.1% respectively.

With more earnings data coming out today, what is in store for the CAD? Were traders just taking some profits off the board early yesterday? Or are concerns regarding Canadian fundamentals and the Loonie’s strong appreciation? Today’s trading session may give us more clues as to what is next for the CAD.