The BOC is up this week! What will the central bank say? More importantly, how will traders react to this week’s top-tier events?
BOC’s policy decision (Dec 5, 3:00 pm GMT)
As expected, the Bank of Canada (BOC) raised its rates by another 0.25% to 1.75% in October.
BOC Governor Poloz emphasized that every meeting is a “live” one and said that removing “gradual” part in the tightening message affords them the flexibility to react to data accordingly.
Analysts aren’t expecting policy changes from the central bank this week. That doesn’t mean that the event will be a non-mover, though!
Read the statement for clues for any changes in the BOC’s optimism and hawkishness. Oh, and don’t forget that Poloz has a presser scheduled the day after the statement’s release! If bulls or bears do spot something to react violently on in the statement, then maybe Poloz can clear points up in his speech.
Uncle Sam won’t be the only one printing employment-related numbers this week!
Remember that Canada only generated a net of 11,200 jobs in October, which is lower than the expected 12,500 increase. The headline data missed so widely that the Loonie dipped even as Canada’s jobless rate dipped from 5.9% to 5.8%.
This week market geeks expect to see a net addition of 15,000 jobs for the month of November. Meanwhile, the unemployment rate is expected to remain at 5.8% for the month.
Note that the report will be printed at the same time as the U.S. NFP numbers. So, unless the NFP reports don’t inspire volatility, it’s likely that reaction to Canada’s release will be muted, if not negated during the trading session.
Oil production updates
The Black Crack received a boost going into the week after Russian President Vladimir Putin shared that Russia and OPEC “have an agreement to extend our deal” even though “[t]here is no final decision on volumes” yet.
We’ll likely know more about the plan to extend the production cut deal during the OPEC meetings starting Thursday.
Before you buy the Loonie like there’s no tomorrow, though, know that Qatar has just decided to withdraw from OPEC starting in January, which could mean more production ahead from the oil giant. Talk about a plot twist!
Last Week’s Price Review
The Loonie is headed for its fourth consecutive week of net losses since the Loonie is currently the second biggest loser of the week (as of 6:00 pm GMT).
At first glance, it looks like the Loonie finally decoupled from oil prices this week. But if you look closely, you’ll see that CAD pairs were taking some directional cues from oil prices.
However, there seems to have been steady selling pressure on CAD pairs since the Loonie usually got dragged lower whenever oil prices moved lower, but only grudgingly moved higher (if at all) whenever oil prices moved back up.
You can see this constant selling pressure if we strip oil from the overlay.
See? The Loonie was steadily sliding broadly lower from Monday until Wednesday then was essentially range-bound on most pairs from Thursday until Friday.
As to why the Loonie was broadly weaker from Monday until Wednesday, there’s no apparent reason for that. And unfortunately, whenever market analysts talked about the Loonie, they are actually only talking about USD/CAD and not the entire CAD complex.
However, it’s possible that NAFTA-related uncertainty may have been weighing down on the Loonie.
If you can still remember, I noted in last week’s CAD recap that Canadian Finance Minister Bill Morneau was asked about NAFTA 2.0 (or USCMA) last Thursday and he had this to say:
“Of course, that situation was improved when we signed the new NAFTA — or when we will sign the new NAFTA, I hope, next week.”
That apparently caused the Loonie to trend higher even as oil prices continued to plunge.
Well, the Mexican government released a statement on Sunday, noting that outgoing President Enrique Peña Nieto and Canadian PM Justin Trudeau talked about NAFTA 2.0 and that they were expecting it to be signed on Friday at the G20 Summit.
White House economic adviser Larry Kudlow would later affirm on Tuesday that the U.S. is looking forward to signing NAFTA 2.0 on Friday. And that may have prompted some CAD bulls to unwind their longs from last week.
However, actual sellers may have also been kicking the Loonie lower since there were reports on Tuesday that Canada and the U.S. were still actually bickering on some issues. And there were similar reports on Wednesday.
There was finally some goods news during Thursday’s late U.S. session since word got around that Canada followed Mexico’s lead and finally offered some concessions to the U.S.
By the way, NAFTA 2.0 (or USCMA or CUSMA) was already signed on Friday by U.S. President Trump, Canadian PM Trudeau, and outgoing Mexican President Peña Nieto.
The deal has yet to be ratified by each country’s respective legislative bodies in order to take effect. Also, U.S. tariffs against Canada are still in place.
But for now, the signed deal and the optimistic comment from Canadian Foreign Affairs Minister Chrystia Freeland that the tariffs could potentially be “solved this afternoon” (and recovering oil prices) helped to shield the Loonie from Canada’s disappointing GDP report.
The damage was already done, however, so the Loonie is turning in yet another poor performance this week.