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The U.S. currency was off to a good start as headlines contained several positive updates for the economy, but end-of-the-month profit-taking eventually took hold.

Equities were mostly higher since Treasury Secretary Mnuchin started talking tax reform and a potential adjustment of the debt ceiling deadline. Meanwhile, the Loonie was the big winner for the day as it got a boost from the Canadian GDP release.

  • Canadian economy expanded by 0.3% vs. 0.1% consensus in June
  • Canada’s Q2 GDP growth up 4.5% vs. estimated 3.7% expansion
  • U.S. initial jobless claims up from 235K to 236K vs. 237K forecast
  • U.S. core PCE price index up 0.1% as expected
  • U.S. personal spending up by 0.3% vs. 0.4% forecast
  • U.S. personal income up by 0.4% vs. 0.3% forecast
  • Chicago PMI unchanged at 58.9 vs. projected dip to 58.7
  • U.S. pending home sales slipped by 0.8% vs. estimated 0.4% gain

Major Events/Reports

Upside Canadian GDP surprise

Market watchers seem to be buzzing about another BOC interest rate hike after Canada’s June GDP reading posted a 0.3% expansion for the month versus the projected 0.1% gain. This brought the second quarter’s GDP figure up by 4.5% versus the consensus of 3.7% growth.

Underlying data revealed that the surge was due to a strong increase in consumer spending as household final expenditures came in at 1.1% for Q2, following the robust 1.2% in the first three months of the year.

To top it off, export activity jumped by 2.3% in Q2, a much faster pace than the previous period’s 0.4% increase. However, business capital growth formation slowed from 3.1% in Q1 to 0.5% in Q2 due to lower housing investment.

Tax reform, debt ceiling and USD strength

U.S. Treasury Secretary Mnuchin made some waves during the session when he started talking about how the Trump administration is ready with a detailed plan for tax reform and is gearing up to implement this by the end of the year. This follows Trump’s earlier remarks on how he wants corporate taxes to be slashed from 35% to just 15%.

Mnuchin also suggested that the looming debt ceiling deadline could be pushed forward to give way for relief efforts related to Hurricane Harvey. In an interview with CNBC, Mnuchin mentioned:

“We obviously have now the hurricane spending, which is an issue. So that’s going to have some impact on our September spending.”

Keep in mind that the U.S. government is under pressure to increase the debt limit or face the possibility of a shutdown by October 1, but Mnuchin is saying that Congress needs to act on it earlier.

In the same interview, Mnuchin also mentioned that having a weaker dollar would be more beneficial for the economy. He said:

“Obviously, the short-term issues of the dollar have both positive and negative impacts for different parts of the economy. Obviously, as it relates to trade, having a weaker dollar is somewhat better for us.”

He also acknowledged that having a strong dollar has been inevitable due to the strength of the economy and sustained confidence in the currency. Obviously.

Risk appetite lifts stocks and commodities

Equity indices and commodities ended August on a positive note as these higher-yielding assets closed in the green.

  • The Dow 30 index is up 0.25% to 21,948.10
  • The S&P 500 index is up 0.57% to 2,471.55
  • The Nasdaq is up 0.95% to 6,428.66

Crude oil also ticked higher on reports of lower natural gas storage levels and an expected surge in gasoline demand during the U.S. Labor Day long weekend.

  • WTI crude oil is up 2.46% to $47.09 per barrel
  • Brent crude oil is up 4.04% to $52.78 per barrel
  • Gold is up 0.96% to $1,326.74 per troy ounce
  • Silver is up 0.92% to $17.564 per troy ounce

Major Market Mover(s):

CAD

The Loonie had a stronger-than-expected reaction to stronger-than-expected monthly GDP data, getting an extra boost from a jump in oil prices as well.

USD/CAD is down from 1.2620 to 1.2490 (-1.07%), GBP/CAD fell from 1.6309 to 1.6143 (-1.01%), AUD/CAD tumbled to .9923 (-0.51%) and CAD/JPY is testing the 88.00 handle (+0.81%)

Watch Out For:

  • 11:45 pm GMT: New Zealand overseas trade index q/q (3.2% expected, 5.1% previous)
  • 12:30 am GMT: Australia AIG manufacturing index (56.0 previous)
  • 12:50 am GMT: Japanese capital spending q/y (8.0% expected, 4.5% previous)
  • 1:30 am GMT: Japanese final manufacturing PMI (no change from 52.8 estimate expected)
  • 2:45 am GMT: Chinese Caixin manufacturing PMI (drop from 51.1 to 50.9 expected)
  • 6:00 am GMT: Japanese consumer confidence index (dip from 43.8 to 43.5 expected)
  • 7:30 am GMT: Australian commodity prices y/y (17.1% previous)