Canada will see A LOT of top-tier reports this week! Will they be enough to boost the Loonie across the board?
Here’s my list:
Trade balance (Sept. 5, 12:30 pm GMT)
Exports surged by a nice +4.1% in June, hitting an all-time high and helping Canada narrow down its trade deficit from $2.7 billion to just $636 million.
This week analysts are expecting Canada’s trade deficit to widen a bit to around 800 million in July. A worse-than-expected reading would likely bring more pain on the Loonie, as it points to an already weak situation in case the NAFTA negotiations go down the drain and the U.S. steps up its tariffs on Canada’s goods.
BOC’s policy statement (Sept. 5, 2:00 pm GMT)
As expected, the Bank of Canada (BOC) raised its rates by 0.25% to 1.50% back in July.
Back then Governor Poloz and his team shared their expectations of lower growth in Q3 as well as their estimates that CPI will edge up to 2.5% before slipping back down to 2.0% by H2 2019.
Since the move was widely expected, the Loonie didn’t react much and even fell victim to a “buy-the-rumor, sell-the-news” scenario later in the week.
Well, no one is expecting the BOC to make any policy changes this week. Word around the hood is that the central bank will likely wait for the NAFTA negotiations to play out before making any more moves in the near future.
Still, the statement could cause a bit of intraday volatility for the Loonie. Watch out for any changes in the BOC’s sentiments!
Employment reports (Sept. 7, 12:30 pm GMT)
Uncle Sam won’t be the only one printing labor market numbers this week!
Analysts see a net of 5,100 workers finding jobs in August, which is a lot weaker than the 54,100 net gain we saw in July. Not only that, but the unemployment rate is also expected to tick higher from 5.8% to 5.9% for the month.
Remember that the BOC recently expressed its data-dependent bias, so you can bet that it will be looking closely at top-tier reports like these!
Ivey PMI (Sept. 7, 2:00 pm GMT)
The IVEY PMI report, considered a leading indicator of the manufacturing sector, usually gets a lot of attention from Loonie traders.
But this week the data won’t come out until AFTER the labor market numbers. And with the U.S. NFP also scheduled to print during the same trading session, it’s likely that we’ll see muted reaction from the Loonie.
If you’re still planning on trading this one, though, then you should know that market players are expecting a jump from 61.8 to a 62.3 reading in August.
NAFTA deal updates
In case you took an early long weekend last Friday, you should know that the widely-anticipated talks between U.S. and Canadian trade representatives fell through.
The reps are scheduled to start another round on Wednesday. If U.S. representatives go along with Trump’s wishes of not giving any concessions to Canada, then we might not see a deal at all and leave traders pricing in another tariff battle.
But if we do see cooperation and compromises from both sides, then the Loonie could find some support and recoup its losses from the previous week.
Last Week’s Price Review
The Loonie is a net loser yet again since it’s currently the third worst-performing currency after the Aussie and Kiwi (as of 5:00 pm GMT).
Like last week, CAD pairs took directional cues from oil, but didn’t really track oil prices too closely. And that’s very likely because of NAFTA-related updates.
As for the deets, the Loonie was boosted by news that the U.S. and Mexico have had a meeting of the minds, which opens the way for Canada to finally rejoin trade talks.
Well, to be more precise (and honest), the official announcement didn’t really have much of an impact. In fact, the Loonie dipped a bit shortly after the official announcement.
However, rumors were already making the rounds that a compromise has been reached, well before the official announcement. And those rumors were the reason for the Loonie’s rise and the slight dip after the official announcement was likely due to profit-taking.
Anyway, buying pressure was ever-present on the Loonie and the Loonie was even able to shrug off the slide in oil prices on Tuesday. And naturally, market analysts were attributing the Loonie’s resilience to speculation that a trade deal can be hammered out.
The Loonie’s rise did eventually stall on Wednesday, though, even as oil prices surged. There were no apparent catalysts, but I noted in Wednesday’s London session recap that we may just be seeing some profit-taking.
The Loonie would find support during Wednesday’s U.S. session, though. There were a bunch of mostly positive trade-related updates, but if we line up price action with the available catalysts, then the one that apparently stopped the Loonie’s bleeding was Canadian Foreign Minister Chrystia Freeland’s comment that:
“We are optimistic about having some very good, productive conversations this week.”
However, it’s also possible that the Loonie may have paid attention to surging oil prices at the time.
At any rate, the Loonie steadied a bit for a while before getting hit by sellers across the board during Thursday’s U.S. session. And that was apparently because Canada’s GDP report failed to impress since monthly GDP growth was flat (+0.1% expected) and the annual reading only printed a 2.9% increase (+3.1% expected).
The Loonie then slowly but broadly drifted lower after that. However, the Loonie’s slide would accelerate on Friday, apparently because of growing doubts that the U.S. and Canada can reach an agreement. And the apparent trigger was a report from the Globe and Mail, which claimed that, well, Canadian officials were concerned that a final NAFTA deal would not be reached on Friday.
Shortly after that, a spokeswoman for the United States Trade Representative (USTR) communicated via email that:
“The negotiations between the United States and Canada are ongoing. There have been no concessions by Canada on agriculture.”
And more bears later came out when the Toronto Star released a report that had leaked snippets of Trump’s “off the record“ comments during a Thursday Bloomberg interview.
“Here’s the problem. If I say no — the answer’s no. If I say no, then you’re going to put that, and it’s going to be so insulting they’re not going to be able to make a deal … I can’t kill these people.”
In a nutshell, Trump appears to be saying that the U.S. will not compromise with Canada. The report even quoted Trump as also supposedly saying that a deal would “totally [be] on our terms.”
Follow-through selling was only limited, though. In fact, the Loonie even began to turn higher on most pairs after that, probably because of short-covering.