Not a lot of action from the Loonie last week. Will the BOC’s statement push it in one direction this week?
BOC statement (July 11, 3:00 pm GMT)
Back in May the Bank of Canada (BOC) kept its rates steady at 1.25% as many had expected.
The central bank kept its hawkish stance, saying that “higher interest rates will be warranted to keep inflation near target.” However, Governor Poloz has since dialed down the hawkish tone.
In a speech two weeks ago he noted that BOC is “particularly data-dependent,” as there are factors such as international trade policies and household debt that still need to be mulled over.
Still, most economic calendars show that market geeks are expecting a rate hike to 1.50% this week. After all, the BOC is also scheduled to print its quarterly monetary policy report as well as conduct a scheduled presser an hour after the official statement.
Aside from the actual rate hike (if they do raise their rates), look out for what the central bank has to say about the U.S.’ steel and aluminum tariffs, the global trade war, and the impact of higher rates on the housing market and accumulation of household debt.
Overall risk sentiment
As the Loonie tends to track oil price movements from time to time, make sure you’re updated on headlines that might move higher-yielding assets.
More tweets from Trump, for example, could once again drag oil prices lower. If you recall, the POTUS is putting pressure on OPEC members to boost their production to help bring prices lower. Crude oil prices jumped after the U.S. imposed sanctions on Iran, but who’s keeping notes?
And then there’s the small issue about a global trade war. China has supposedly implemented its retaliatory tariffs at the same time as the U.S. and now EU members say they “will react collectively and we will react firmly” if there are increases in tariffs.
Last Week’s Price Review
Compared to last week’s impressive run, the Loonie’s performance this week is rather underwhelming since the Loonie is currently mixed for the week (as of 5:00 pm GMT). The Loonie’s still a net winner, though, which is something, I suppose.
The Loonie was basically range-bound from Monday until Thursday and CAD pairs didn’t really stray too far away from last week’s closing prices (dashed horizontal line), likely because there were no major catalysts for the Loonie.
The Loonie also didn’t really track oil prices. And besides, oil prices were also range-bound from Monday until Thursday.
CAD pairs (except USD/CAD) did appear to track oil prices lower during Thursday’s U.S. session and on Friday, though. Although that may have been just preemptive positioning and/or profit-taking ahead of Canada’s jobs report.
Another possibility is that traders began to worry about Canada’s own growth prospects after Trump fired the opening salvo of the Sino-US trade war. After all, the U.S. is Canada’s main export market.
Going back to Canada’s jobs report, jobs growth came in better-than-expected by printing a 31.8K net increase in jobs.
The Loonie’s initial reaction was to jump higher. However, bears quickly rushed in, likely because market players were appalled to find that wage growth fell by 0.30% month-on-month (-0.43% previous), marking the second month of declines.
Year-on-year, the average hourly wage rate only rose by 3.63% in June, a weaker annual increase compared to the +3.94% recorded in May.
Also, the jobless rate jumped from 5.8% to 6.0%, which is the worst reading since October 2017.
Moreover, Canada’s trade deficit widened as imports increased and exports fell, which likely helped to kick the Loonie lower as well.
However, the Loonie quickly recovered after the initial drop, probably because CAD pairs were taking directional cues from rising oil prices.
Although it’s also possible that the jobs report helped the Loonie to recover since full-time employment still increased by 9.1K. Also, the higher jobless rate was partially due to the labor force participation rate jumping from 65.3% to a three-month high of 65.5%.