The Loonie is back in the winner’s circle after getting booted out last week. Can this week’s catalysts extend its gains?
Monthly GDP (July 31, 12:30 pm GMT)
Bad weather didn’t rain on the economy’s parade last April, as GDP inched 0.1% higher even though bad weather affected sectors such as retail trade and construction.
Expectations are higher for the month of May with analysts seeing a 0.3% bump in May. Last month’s GDP release provided the Loonie the oomph it needed to finish the week strong, so y’all better stick around during this week’s update to see if you can squeeze in some intraday moves in your trading plans!
Trade balance (August 3, 12:30 pm GMT)
Imports of airlines and gasoline bumped up Canada’s imports in May, which helped widen the trade deficit from 1.86B CAD to 2.77B CAD.
Luckily for the bulls, all eyes were on the better-than-expected Canadian labor market numbers printed at the same time as the trade report.
This week analysts are looking for the deficit to tighten to about 2.3B CAD in June. The Bank of Canada (BOC) has already cited trade concerns as one of the risks to economic growth, but that’s before we saw developments in the NAFTA negotiations.
Will this week’s numbers give the BOC more reason to pace its interest rate hikes?
Oil prices and risk sentiment changes
As you can see below, the Loonie is starting to take cues from crude oil price action again. Aside from the U.S. crude oil inventories scheduled on Wednesday, look out for other catalysts that might affect demand for crude oil and higher-yielding currencies like the Loonie.
Oh, and keep your eyes peeled for updates on the NAFTA negotiations! If officials share more optimism like they did last week, then the Canadian dollar is in for more gains.
Last Week’s Price Review
The Loonie’s three-week bullish run was interrupted when the Loonie became a net loser last week. However, last week’s poor performance was apparently only a minor speed bump since the Loonie is this week’s top-performing currency (as of 5:00 pm GMT).
After a couple of weeks of not paying attention to oil prices, it looks like the Loonie is taking directional cues from oil prices again.
And oil prices were on a tear for most of the week (before slumping on Friday), thanks to easing trade-related jitters and Saudi Arabia’s decision to temporarily halt crude transport through the Red Sea shipping lane, market analysts say.
Do note, however, that oil prices started to climb on Tuesday, but the Loonie only started trading broadly higher on Wednesday. Also, the Loonie captured the bulk of its gains on Wednesday.
So what happened on Wednesday? Well, some market analysts also attributed the Loonie’s rise to narrowing spreads between U.S. and Canadian bonds, which means less incentive to favor U.S. bonds over Canadian bonds.
Other market analysts, meanwhile, pointed to growing trade optimism because of positive NAFTA-related developments, namely optimistic comments from Canadian Foreign Minister Chrystia Freeland and Mexican Economy Minister Ildefonso Guajardo that around two-thirds of the deal have been hammered out.
Since we’re on the topic of NAFTA, there were also other positive NAFTA-related developments. They didn’t have a noticeable impact on the Loonie’s price action, though. Even so, it’s likely that these developments helped to sustain the Loonie’s rise.
As for specifics, U.S. Trade Representative Robert Lighthizer testified before a U.S. Senate subcommittee and he said the following:
“My hope is that we will, before very long, have a conclusion with respect to Mexico and that, as a result of that, Canada will come in and begin to compromise.”
Lighthizer also said that U.S. hopes to clinch a deal with Mexico “some time in August,” with a NAFTA deal with Canada to follow shortly after.
That last bit isn’t really new, though, since Trump already spilled the beans last week.
Still, Lighthizer’s comments did seem to confirm what Freeland and Guajardo said on Wednesday.
And as icing on the cake, Guajardo would say later that he had “constructive” and a “very positive” discussion with Lighthizer. More importantly, Guajardo said that he has agreed to speed up talks so that a deal can be reached by August when he said that:
“We agree that in order to align the times and to eventually reach an agreement in principle, we should give ourselves the opportunity to move forward and try to bring this to fruition.”