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USD/CAD: Higher Oil Prices Boost Loonie, BoC in Focus

The USD/CAD pair retreated to the lower end of the C$1.32 level, as oil prices rose and markets projected that the Bank of Canada (BoC) will keep its interest rate steady at 0.5% tomorrow.

The so-called loonie was up 0.79%, trading at C$1.3203 against the greenback, after hitting the intraday high of C$1.3189 earlier in the session.

The oil price advance was the central currency mover on Tuesday, as futures for West Texas Intermediate crude oil advanced 2.53% to $45.37 per barrel and Brent increased 1.90% to $49.00 per barrel.

"CAD is strong … with gains driven by an improvement in broader market sentiment. This week's highlight for CAD lies with Wednesday's BoC policy decision and statement release (no MPR or press conference), with risk to the statement tone as we consider the material improvement in Canada's non-energy export performance from June and July," currency strategist at Scotiabank, Eric Theoret, said in a note.

"Relative policy considerations are likely to be CAD supportive, given the continued softening in expectations for BoC easing over the next 12 months—now pricing a 39% chance of a 25bpt rate cut, halving from 78% in late August."

Economists expect the BoC to keep the dovish tone by stressing the situation in China, but at the same time, noting the improvement in the third quarter.

"The bank is going to acknowledge that the past has not been as good and the future is brighter than what they had expected in July. They can take encouragement from that. And there is no need to cut rates again," senior economist at National Bank of Canada, Krishen Rangasamy, told WBP Online.

In addition, macro data released during the session revealed that the Fed's Labor Market Conditions Index for August reached 2.1 points in the US, beating the expectation of 1.5 and rising from the revised reading of 1.8 points booked previously.

Also, traders are waiting for the American consumer credit report and Minneapolis Fed President Narayana Kocherlakota's speech, which will touch on the outlook for US monetary policy.

Earlier, traders digested trading activity in Chinese equity markets after the latest update of the nation's trade balance in August. China's merchandise trade surplus grew from $43.03 billion in July to $60.24 billion in August, its largest since May last month. However, a sharp decline in exports was masked by an even steeper fall in imports.

source

 

Canada July building permits -0.6% vs -5.0% expected

Housing data from StatsCan:

The latest housing reports won't be a factor in the Bank of Canada decision that's due in 90 minutes.

 

Preview: BoC to Keep Rates Steady at 0.5%, Dovish Statement Expected

The Bank of Canada (BoC) is projected to keep the overnight rate at 0.5% after slashing it 25 basis points in July for the second time this year, according to analysts’ consensus.

The overall tone of the statement is expected to be dovish, as oil prices still remain low and are hurting the Canadian economy. There are also mounting global growth concerns, with China’s future prospects on everyone’s mind.

The rate announcement will be published at 10am EDT on Wednesday. There will be no Monterey Policy Report (MPR) released along with the statement and no press conference scheduled for after, limiting market reaction to the news.

China worries

Worries around China’s growth potential have triggered great volatility in the financial markets and the central bank is not going to ignore that.

"The BoC has to mention the situation in China and the global economy outlook as a whole. Since July, things have sort of arguably deteriorated at the global level. [The bank] will probably mention the weak global economic outlook," senior economist at National Bank of Canada, Krishen Rangasamy, told WBP Online.

The global economic uncertainty has put additional weight on commodity prices, including oil. It is very probable that lower-than-expected crude prices will take an important place in the statement.

"In the July MPR, the oil assumption was set at US$65, $60, and $50 for Brent, WTI and WCS crude, while prices have averaged about $50, $44 and $28 since then. That suggests there could be even further cuts to capital spending and employment in the energy sector, representing a downside growth risk for H2 and perhaps even 2016," BMO Capital Markets vice-president and senior economist Benjamin Reitzes said in a research note.

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Bank of Canada holds rates at 0.50%

Highlights of the BOC statement on September 9, 2015:

  • Economic activity underpinned by solid household spending and a firm US recovery
  • Increasing uncertainty about growth in China and other emerging markets and that raises questions about global growth
  • Movements in CAD are helping absorb some of the impact of lower commodities on inflation
  • Overall export picture uncertain but data confirm that exchange-rate sensitive exports are gaining momentum
  • Inflation outlook in line with July
  • Policy stance is appropriate for inflation risks

There is no press conference later so this is all we get from the Bank of Canada. USD/CAD is down to 1.3169 from 1.3250 on the headlines.

There is certainly an optimistic tone in the report and no hints about future easing. That could change if oil prices tumble again, China stumbles or Canadian growth disappoints.

source

 

USD/CAD forecast for the week of September 14, 2015

The USD/CAD pair fell initially during the course of the week, but bounced enough to form a hammer. The hammer suggests that the buyers are still involved in this market, and we believe that the 1.30 level is the beginning of support. Looking at this market, we believe that there is support from the 1.30 level down to the 1.28 level below. With this, we are bullish but recognize that you may have to use shorter timeframe charts in order to get involved.

source

 

Canada Teranet house price index +5.4% y/y vs +5.1% prior

Canadian house price index from Teranet/National Bank:

  • Up 1.0% m/m
  • Prior reading was +5.1% y/y and +1.2% m/m
  • Index level at 176.12 vs 174.33 prior

Back to back 1.0% and 1.2% monthly gains suggest the Canadian housing market is rock solid despite the recession this year. I can't continue forever but there are no cracks at the moment.

 

July 2015 Canadian manufacturing sales 1.7% vs 1.0% exp m/m

July 2015 Canadian manufacturing sales data report 16 September 2015

  • Prior 1.2%. Revised to 1.5%
  • Sales ex-autos 0.7% vs 0.9% prior. Revised to 1.3%
  • New orders 10.2% vs 0.6% prior. Revised to 1.2%
  • Unfilled orders 2.7% vs -1.7% prior
  • Inventories 1.1% vs -0.5% prior
  • Inventory/sales ratio 1.40 vs 1.42 prior. Revised to 1.40

Autos look to be the main leader for sales

It's double bubble for the CAD as the USD dollar goes soft on then CPI data and CAD gets stronger on the better sales. We've just touched 1.3209 from 1.3235

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USD/CAD: Loonie Flat as Markets Await Fed Announcement

The USD/CAD pair was stuck in subdued trade as the market quietened down ahead of the Federal Reserve (Fed) rate decision, which is due later in the session.

The so-called loonie edged down 0.17% to C$1.3196 against the greenback, after hitting an intraday high of C$1.3173 earlier in the session.

All eyes are on the Fed, which is likely to delay the lift-off, according to the latest pricing from the fed funds futures, showing only 30% odds for raising rates today. Investors will be paying attention to fresh economic projections, along with the so-called dot plot.

"The improvement in the economy over the past few years means that it is almost impossible to justify interest rates still being at near-zero. Nevertheless, a number of Fed officials clearly want to use the recent volatility in financial markets as a reason to delay the first rate hike yet again," Paul Ashworth, an economist at Capital Economics, wrote in a note.

"Regardless of the exact timing of the first rate hike, we anticipate that rising wage growth and core inflation will force the Fed to raise rates much more aggressively next year than the markets currently expect," he added.

Thursday’s American macro data showed that 264,000 people applied for the first time for unemployment benefits in the week ending September 12, the lowest level since the period of July 18, while analysts expected an unchanged reading of 275,000.

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Preview: Canada's Inflation to Stay Unchanged After Energy Price Slump

The Canadian Consumer Price Index (CPI) is estimated to remain unchanged at 1.3% in August on a yearly basis, after the reaching the highest level since December 2014 in the previous month, according to analysts' consensus.

Meanwhile, the annual core measure, which excludes eight volatile components, is estimated to have slowed to 2.1% from 2.4%, but to still remain above the Bank of Canada's (BoC) 2% target for the thirteenth month in a row.

Fresh inflation figures will be released on Friday at 12:30pm GMT.

Flat growth is likely to put additional pressure on the Canadian dollar, which has been struggling versus its US peer as lower oil prices drag the commodity-based currency down.

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USD/CAD: Still A Buy Targeting 1.36 - Credit Agricole

The focus in Canada next week turns to the retail sales release for July. Recall, it beat market expectations in two of the past three months, highlighting that the consumer continues to hold up weak in spite of the rise in inflation and drop in the currency.

In our view the wealth effect from the surge in the housing market continues to underpin consumer demand. Housing price gains have averaged nearly 2.0% a year over the past five years, helping insulate Canada to some degrees from the wobbles in the oil market. What’s more, housing price gains have outstripped monthly GDP over the past few months, suggesting buoyant domestic demand.

Even so, we don’t think solid consumption growth will be strong to offset the slowdown investment as oil prices will remain low for long.

In turn, we still think the BoC will be forced to ease again to help move along the economic rebalancing in an effort to boost manufacturing.

This argues towards continuing to buy USD/CAD with our outlook for 1.36 by year-end.

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