Geopolitical risks and global economic growth worries took down oil and the Loonie this week, ranking the Canadian dollar as the worst performer of the week.
Canadian Headlines and Economic data
Monday:
- In Canada, the IPPI increased 0.2% in Aug, after falling 0.3% previous; the RMPI fell 1.8% in Aug, following a 1.3% increase in July
- Oil falls, Brent posts biggest quarterly drop this year on demand fears – it was a rough week for oil bulls, which was likely a top driver for the Loonie’s weakness this week. It started on Monday with demand fears based on an escalating U.S.-China trade war.
Tuesday:
- Canada GDP came in at 0.0% m/m in July as a decline in goods-producing industries was offset by an increase in services-producing industries
- Canada’s GDP flat in July as oil and gas extraction shrinks
- On top of Canada’s arguably disappointing GDP data, global risk aversion also kicked into high gear, likely putting additional pressure on the Loonie. This sentiment shift was likely on a combination of rising risks from the global manufacturing sector (Operating conditions at ASEAN manufacturing firms deteriorated for the fourth consecutive month in September) and capped off during the U.S. trading session after a much weaker-than-expected U.S. manufacturing sentiment report (US manufacturing contracts to worst level in a decade).
Wednesday:
- Another round of risk aversion sentiment hits the markets during the Wednesday session, likely on a combination of U.S. geopolitical risks (Trump impeachment probe gains steam with briefing, depositions) and Asian geopolitical risk (North Korean projectile lands in Japan’s exclusive economic zone, Tokyo says), and new trade war risks (US to impose tariffs on EU aircraft and agricultural products), all on top of the global growth slowdown fears from earlier in the week. This contributed further to weaker oil prices, and most likely the Canadian dollar as well.
- Oil drops to 2-month low on economic woes, as U.S. crude stocks climb a third straight week – this seems to be the main catalyst for the Loonies big turn lower during the Wednesday trading session.
Thursday:
- Oil slips toward $57 as economic gloom weighs, likely the driver for Loonie weakness during the Asia / London trading sessions, but the Loonie stabilized during the U.S. trading session, possibly on a shift in global risk sentiment coming from the U.S.-China trade negotiation story after Trump says a Chinese delegation is coming to U.S. next week for trade talks, as well as speculation that the weak global manufacturing data may be enough to spark further rate cuts from the Federal Reserve.
Friday:
- The Loonie saw little bit of buying support during the morning U.S. trading session, possibly on the net positive U.S. employment update (September unemployment rate falls to 3.5%, a 50-year low, as payrolls rise by 136,000) and Canadian trade data (Canada’s merchandise trade deficit narrowed from $1.4 billion in July to $955 million in August), before the disappointing Canadian business survey data (Ivey PMI declines to 48.7 in September vs. 60.6) knocked it back down.
