Daily Economic Commentary: Canada

Trading Discussion News and Economy
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The loonie slipped against the greenback last Friday when the strong US retail sales data boosted demand for the US dollar. Oil prices, which fell below $70 per barrel, caused the loonie to lose its grip.

Canadian new house prices rose by 0.3% in November, marking its fourth straight month in increases. Amidst the rising house prices, Canadian Finance Minister Jim Flaherty assured that measures to avoid a housing price bubble are not necessary.

Canada has a few important economic reports due this week. On Tuesday, the leading index and labor productivity data are set for release at 1:30 pm GMT. Labor productivity is estimated to be 0.4% slower in the third quarter while the leading index is expected to print a 0.6% uptick for November.

Wednesday has the manufacturing sales report on deck. It could show that manufacturing sales rose by 0.5% in October, after surging by 1.4% in the previous month. Also, BOC Governor Mark Carney is scheduled to deliver a speech then.

Inflation data are due on Thursday, when Canada releases its CPI and core CPI readings for November. Price levels are projected to rise by 0.4% while the core CPI is expected to post a mere 0.1% uptick. Then, on Friday, data on wholesale sales are due.

Whew! That’s a lot of data from Canada! Don’t forget to keep an eye out for sentiment-changing reports from the US as well!

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Trading was a bit boring for the Loonie yesterday as it just traded within a 95-pip range versus the dollar. The USDCAD opened at 1.0607 but closed slightly lower at 1.0593.

No major economic reports were due in Canada and the US yesterday. The CAD ended flat due to the lack of economic flows.

Today (1:30 pm GMT), Canada’s labor productivity for the third quarter will be released. Labor productivity during the period is seen to have dropped by 0.4% during the period. A decrease in the account translates to a higher wage per unit of productivity. Such is related to inflation since these higher costs are usually transferred to consumers. Hence, any decrease in labor productivity is generally bullish for the CAD.

At the same time, Canada’s leading index for the month of November will be issued. The index is once again projected to have advanced by 0.6% after already posting a 0.7% gain during the month prior. The index has been posting gains for the past 4 months though the rate of increase is already starting to slow. In any case, any increase in Canada’s leading index points to a better economic outlook for the country and for the Loonie as well.

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Thanks to positive economic data, the Loonie managed to remain resilient against the dollar in yesterday’s trading session.

Canada’s leading index for November came in at 1.3%, more than double the 0.6% prediction. It was also higher than the 0.7% figure from the month before. The leading index is basically a combination of economic indicators (some of which have been previously released) that tries to determine whether the economy is improving or not. Digging deeper into the report would reveal that the huge uptick was primarily caused by the sharp rise in existing home and retail sales.

New motor vehicles sales also grew more than expected in October. Apparently, sales increased 3.5%, slightly higher than the 3.1% predicted.

The labor productivity report for the third quarter didn’t share the same positive tone as it came in worse than forecast. The report printed a -0.2% instead of the -0.4% expected. A decreasing labor productivity number means that businesses are paying more for each unit of productivity. This might be a bit confusing but decreasing productivity could be seen as “good” for the economy as increasing costs are usually transferred to consumers. This, in turn, leads a rise in the prices of goods and services… In other words, inflation! And what do central banks do when inflation becomes too much? Yep, you got it - they raise rates! With that said, any decrease in labor productivity is considered bullish for the domestic currency… in this case, the Loonie.

For today, the only report coming out of Canada is the November manufacturing sales report. The forecast is that sales increase 1.0%, which, if holds, would be slightly lower than the 1.4% growth seen the month before. Await the actual result of the report at 1:30 pm GMT.

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More range trading for the Loonie yesterday, as it seemed that traders were hesitant to act before the release of the FOMC report. The USDCAD ended the day slightly lower, at 1.0607.

A manufacturing sales report showed that sales grew by 2.0% from September to October. This was better than the expected 1.0%, although September’s figure was revised down from 1.4% to 1.0%. The market reaction was muted however, as traders waited idly for the FOMC report due later in the day.

Today, we’ve got some inflation data coming up as the consumer price indexm/m report will be released at 12:00 pm GMT. The headline report is expected to show a 0.3% increase in prices, although the core figure – which is the number that the BOC and traders both pay more attention to – is forecasted to show a rise of 0.2%. if the CPI reports come in higher than forecasts, could this prompt BOC officials to consider more exit strategies?

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Unlike most of the major currencies, the loonie refused to bow down to the greenback yesterday. As Canada’s inflation data was slightly better than expected, the USDCAD was able to consolidate around the 1.0700 area.

Canadian consumer prices rose stronger than expected, printing a 0.5% increase in CPI and a 0.4% climb in core CPI. This gave the loonie a fighting chance against the greenback since the good inflation data caused many to speculate that the BOC could hike rates soon. Also, the previously released US CPI was weaker than expected, making the loonie more appealing than the greenback.

Today, Canada has wholesale sales data on tap. In the absence of US economic reports, Canadian wholesale sales could give the loonie another reason to hold its ground against the greenback. If the actual report beats the consensus of a 0.4% rise, the loonie could even win back some of its losses this week.

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The Loonie staged a small rally versus the dollar last Friday due to some surprisingly upbeat corporate earnings figures in the US plus a rise in Canadian wholesale sales. The USDCAD closed at 1.0660 from an opening price of 1.0703.

Canadian wholesale prices rose less-than-expected at 0.3% to C$41.1 billion in October. The consensus was for a 0.4% increase. The gain in the figure was due to a 1.5% advance in automotive products to C$6.59 billion. Though, the rise in automotive sales was tempered by a 1.8% drop in food, beverages and tobacco products wholesale sales.

The Loonie got its support from the positive corporate earnings of Nike, Oracle, Accenture, and Research in Motion. Short covers plus some risk appetite helped keep the US capitals markets and the higher yielding currencies in green territory.

Today, data Canada’s retail sales for the month of October will be released at 1:30 pm GMT. The headline retail sales are seen to have risen only by 0.8% after posting a 1.0% gain during the previous month. Meanwhile, core sales which exclude automobiles are likewise seen to cool off with only a 0.2% advance, much lower compared to the 1.1% rise in September.

On December 23, Canada’s m/m GDP for the month of October will be published. Canada’s economy is projected to have expanded again by 0.3% after posting a 0.4% growth during the month prior. A pick up in retail sales could gives us a hint whether the economy’s overall output rose as well.

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The Loonie bagged the best performing currency award in yesterday’s trading session. From its Asian open price of 1.0668, the Loonie headed to a low of 1.0537 before giving up some of its gains and closing the US session at 1.0614.

From the looks of it, the losses the Loonie experienced during the US session were mainly caused by technicalities rather than any fundamental or sentimental catalyst. If you look at Big Pippin’s chart update today, you’d see a rising trend line support that extends all the way from December 1.

The retail sales report that came out yesterday was in line with expectations. It showed that sales rose 0.8% in October, which was a slightly lower from the 1.1% growth (revised up from 1.0%) seen on September. However, the core version of the report, which removes car sales in its computation, showed a 0.2% increase only, half the 0.4% gain initially expected.

No highly important events from Canada today so expect to see the Loonie’s price action be primarily dictated by economic news coming out from the US.

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Despite the dollar’s domination against other currencies, it just can’t seem to get one up on it’s neighbors from the Great White North! The CAD once again didn’t buckle under USD strength and gained for the third day in a row, as the USDCAD pair closed at 1.0581.

The Canadian dollar has been boosted by rising crude oil prices. Take note that oil is Canada’s greatest export, so when prices are rising, it normally buoys sentiment towards the CAD. The CAD may also be gaining some support in anticipation of good GDP figures due today at 1:30 pm GMT. The Canadian economy is expected to have grown by 0.3% from September to October, marking the second straight month of growth. If the figures come in line with expectations, we may see the CAD continue its rise against the dollar.

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The loonie toned down its rally against the greenback towards the end of last week but stayed safely below the 1.0500 handle. Canada did not release any economic reports then, leaving the loonie at the mercy of commodity prices.

No economic reports are due from Canada this week, which means that the loonie’s price behavior could take cue from commodity prices once again. Last week, oil and gold prices staged a small rebound, pushing commodity currencies a bit higher. If commodity prices continue to rise this week, then the loonie could resume its rally.

Bear in mind that, as the holidays dry up market liquidity, US dollar strength could prevail for the last stretch of 2009. With most traders still out enjoying the holidays, volatility could spike so brace yourself for some early fireworks in the currency markets!

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The USDCAD snapped its short term down trend during the last couple of days of the 2009. Presently, the pair appears to be consolidating. Though, the bias remains to be on the downside given the its previous trend.

Canada’s Ivey PMI for the month of December is scheduled to be released on January 7. The index is seen to cool down to 52.2 from 55.9. Still, the projected number is above the 50.0 mark which indicates expansion in the economy. Nonetheless, a drop in the figure could be bearish for the CAD in the very short term.

On January 8, the country’s employment change and unemployment rate in December will be issued. Canada is expected to have added about 20,200 new jobs during the period on top of the 79,100 new hirings during the month prior. With firms hiring during the last 2 months, the country’s unemployment rate is seen to have improved to 8.4% from 8.5% during the same period. Job creation is vital for the economy since it positively affects an individual’s spending. Hence, an increase in employment could very well be bullish for the economy and the CAD.

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Just like its fellow commodity-based currencies, the CAD traded higher against the USD in yesterday’s trading session. The USDCAD opened the week at 1.0516 but the pair eventually found itself just a couple pips above 1.0400 when the US trading session ended.

Despite Canada’s empty economic calendar, the price of oil, which has a positive correlation on the CAD’s value, climbed to $81 a barrel as demand for heating increased this winter time. Improved risk tolerance from optimistic manufacturing industry reports from US and China also helped the CAD push even higher against the USD.

Today, expect to see Canada’s RMPI or raw materials price index at 1:30 pm GMT. The report measures the percentage change in price manufacturers pay for their raw materials. The RMPI is commonly used as a leading indicator of inflation because higher costs are usually passed on to consumers. The forecast is a 1.2% rise in prices in November, slower than the 2.5% increase seen in October.

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The CAD tried to push for big gains against the USD yesterday, giving up some during the latter part of the US session. After hitting a low of 1.0336, the USDCAD pair eventually closed at 1.0390. Looks like traders are being careful ahead of the NFP report due later this week…

The raw material price index revealed yesterday that raw materials prices rose much higher than expectations. Prices rose by 2.2%, much higher than predictions of a 1.2% increase. It is important to take note of when inflation figures are released because they could signal potential moves by the Bank of Canada. If prices continue to rise in Canada, it may prompt the BOC to rise interest rates sooner than expected.

In other news, the BOC announced that they were planning to sell €1 billion worth of euro denominated bonds. My, my, the last time I saw this happen was well over 10 years ago! Could this be a sign that the BOC plans to diversify their reserve portfolio? Let’s see how this pans out in the future…

Tomorrow at 3:00 pm GMT, the Ivey PMI report is scheduled for release. The report measures business seniment amongst managers, who rate current business conditions. Experts predict that the index will dip from 55.9 to 52.2. Despite the decrease in the index, it would still indicate expansion.

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The USDCAD slid closer to its 18-month low yesterday after oil price rallies provided support for the loonie. No economic reports were released from Canada yesterday but increased risk appetite allowed the loonie to continue its 5-day winning streak.

The improvement in the US ADP non-farm employment report may have been a key factor driving risk sentiment yesterday. The report showed that net job losses fell from 169K in November to 84K in December, hinting at a strong NFP figure come Friday.

Canada is set to report its Ivey PMI reading for December at 3:00 pm GMT today. The index is estimated to drop from 55.9 to 52.2, implying that businesses could be expanding at a slower pace. If the actual figure comes in worse than forecast, then it could put a halt to the loonie’s recent rallies.

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The Loonie broke its 5-day winning streak with a 73-pip loss versus the dollar yesterday. Still, the USDCAD remains to be on a strong long term downtrend on its daily time frame.

Canada’s Ivey PMI surprisingly fell to 48.4 in December from a score of 55.9. It was only expected to cool down to 52.2. The recent mark is now below 50.0 which suggests that Canada’s broader economic condition from the point of view of purchase managers is deteriorating. The last time the Ivey PMI fell below 50 was back in May 2009.

Later at 12:30 pm GMT, Canada will release its own version of the employment change and unemployment rate report. Canadian firms are expected to have hired about 20,200 more employees in December on top of the 79,100 new placements during the month prior. The nation’s jobless rate, however, is seen to have remained the same at 8.5%. In any case, more jobs will eventually lead to more spending and thus could give a positive signal on the economy and the Loonie.

Expect some volatility following the time of release especially since the US NFP report will also be published just an hour and a half after Canada issues theirs.

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Despite ugly labor market data from Canada, the CAD managed to gain slightly against the USD. The USDCAD opened the Asian session at 1.0348 and eventually found itself at 1.0269 when the US trading session closed for the week.

Canada’s employment change report for December, which was predicted to show 20,200 net jobs created, printed 2,600 net jobs lost instead. This was certainly a far cry from the 79,100 net jobs created in November! Meanwhile, the US’s version of the report, the non-farm payrolls, showed that 85,000 net job losses, much higher than the 3,000 losses first predicted. If it hadn’t been for uglier results on the US non-farm payrolls report, the CAD would’ve been beaten to a pulp by the USD.

This week, we will see housing starts, building permits, the BOC business outlook survey and the trade balance.

The housing starts report, which will be released at 1:15 pm GMT today, is expected to print that 161,000 (annualized) new houses began construction in December. If the forecast holds, fourth consecutive gain, adding more evidence that Canada’s housing market is picking up. On the other hand, the December building permits report that will be released shortly after at 1:30 pm GMT, is predicted to show a 2.6% decline in issued permits, opposite the 18.0% increase seen in November.

The BOC’s business outlook survey for the first quarter of this year will also be released today at 3:30 pm GMT. Since this survey comes out a week ahead of the BOC interest rate decision, traders usually use it as a way to predict changes in the BOC’s policy. If the survey’s tone is positive, we could see the CAD be bought up again by currency traders.

Last on my list is Canada’s November trade balance. The trade balance measures the net difference in value between imported and exported goods. A positive balance is called a surplus, which means more goods were exported than imported. Meanwhile, a negative balance is called a deficit, which means imports surpass exports. The forecast for November is a surplus balance of 900 million CAD, up the 400 million CAD seen in October. A rising trade balance is usually considered bullish for the CAD because foreign investors need to first purchase the CAD in order to buy Canada’s exports. The actual results will be released tomorrow at 1:30 mp GMT.

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After it looked like it was going to test for new highs versus the dollar, sentiment towards the CAD went ice cold during the US session. The USDCAD ended up closing higher at 1.0334.

Canada got some mixed data from the housing sector yesterday. The housing starts report showed that the annualized number of homes that began construction the previous month rose to 175,000, much higher than the forecast of 161,000. This marked the 9th consecutive month that housing starts rose. However, building permits fell by 4.6% after it was projected that the number of permits being handed out would only fall by 2.6%.

Meanwhile, the BOC outlook surveys had a generally positive tone, as they revealed that Canadian businessmen are more optimistic over the state of the economy. According to the reports, a majority of Canadian businesses expect sales to rise in 2010. They also noted that credit is more readily available. What does more spending and lending mean for the economy? That’s right buddy – it’s a good thing!

The surveys also revealed that businessmen they do not expect inflation to rise sharply over the next year. Word on the ice skating rink is that BOC head Mark Carney will not be raising rates till June at the earliest…

Still, the optimistic data failed to push the Canadian dollar any higher. Could it be that traders feel that Loonie’s run was overextended? Maybe, just maybe…

Today, trade balance figures will be available at 1:30 pm GMT. It is expected that Canada posted a surplus of C$0.8 billion during the month of November, up from the C$0.4 billion figure in October. If this figure comes in to beat forecasts, this could help the CAD regain some of the losses from yesterday.

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Weighed down by falling commodity prices, the loonie succumbed to the greenback, causing the USDCAD to reach a high of 1.0403 during the US session. Canada’s worse than expected trade balance didn’t help the loonie’s cause.

Canada’s trade surplus of 0.5 billion CAD in October turned into an ugly deficit of 0.3 billion CAD in November. This was disappointing news since the consensus was that the trade surplus would widen to 0.8 billion CAD during the month. According to the BOC, the recent strength of the loonie and the weak demand from the US are the two factors holding down the growth in Canada’s exports. True enough, components of the trade balance showed that Canada’s exports to its largest trade partner, the US, dropped by 0.28 billion CAD in November. In fact, imports rose by 3.9% during the month, overshadowing the 1.1% growth in exports.

Canada won’t be releasing any economic reports today, which means that the loonie’s movement would be mostly affected by commodity prices. Economic reports from the US, namely the Beige Book and the federal budget balance, should also have a huge impact on the USDCAD price action.

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The Loonie hit it big yesterday as it completely erased its losses that it incurred vis-à-vis the dollar last Tuesday. The USDCAD fell and settled at 1.0306 from a high of 1.0413.

No economic reports were released in Canada yesterday. The Loonie got its support when the US equities markets bounced back from the profit takings held during the past couple of days. This led to the selling of US treasuries, and therefore, the greenback as well, benefitting the “anti-dollars” like the Loonie.

Canada’s economic calendar is report-free again today. In the US, data on retail sales and unemployment claims will be released. Sales on the retail level are expected to have logged in a 0.4% gain while the initial jobless claims for the week ending January 9 are projected to have topped the previous week’s tally with a 438,000 count. In any case, if buying interests remain in the US equities markets, the likes of the CAD could once again strengthen.

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Taking advantage of rising commodity prices, the USDCAD managed to burst through its yearly low at 1.0250 yesterday. The USDCAD’s losses were further exacerbated when poor results from the US retail sales report came out.

No important economic data from Canada was released yesterday but the speculation that demand for commodities will rise this time of recovery gave the chance for investors to buy up the CAD. Remember, more than 50% of Canada’s trade income comes from commodities, and an uptick in international demand for its exports will help the country fully recover and post economic growth.

No news coming out of Canada again today so the CAD would again be at the mercy of commodity prices and data from the US, most notably the preliminary UoM consumer sentiment survey and the consumer price index.

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The Canadian dollar slipped on Friday as oil prices fell while the USD showed some might across the board. The USDCAD ended the week even, closing at 1.0296.

Word on the street is that there is the possibility that the BOC may consider some currency intervention as the CAD approaches its 2009 highs. In the past, BOC officials have said that feared that a strong Loonie would hurt the Canadian economy because it would effectively make exports more expensive. These concerns may have cooled off after last Friday’s trading. Still, I’ll keep you all posted if this continues to develop.

At 1:30 pm GMT, the Foreign Securities Purchases report for November is scheduled for release. The report measures the total amount of Canadian bonds and stocks that were purchased during the reported month. It is expected to show a dip in purchases from C$5.81 billion to C$5.23 billion. Take note that in order to purchase local bonds and stocks, one must first have the local currency. Thus, this report would help reflect demand for the CAD.

Tomorrow could be a crucial day in CAD trading, as the BOC will be releasing its interest rate decision. It is expected that rates will remain steady at 0.25%. I’m going to be listening closely to the accompanying BOC statement – it may contain hints of the BOC’s plans for the coming year. Who knows, they may once again show concerns about the CAD’s value…