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It’s all good in the ‘hood for Uncle Sam as a few Fed officials expressed their inclination for a December hike while the Trump administration took some steps forward in tax reform. It also helped that economic reports were mostly in the green, keeping dollar bulls in a good mood ahead of NFP Friday.

  • Canadian trade deficit widened from 3.0B CAD to 3.4B CAD vs. 2.6B CAD forecast
  • U.S. initial jobless claims down from 272K to 260K vs. 266K forecast
  • U.S. trade deficit narrowed from $43.6B to $42.4B vs. $42.7B consensus
  • U.S. factory orders rebounded by 1.2% vs. projected 1.0% gain
  • Fed official George: Further gradual hikes needed, delaying poses risks to growth and stability
  • Fed official Williams: Rising wages to push up inflation, will support another hike if data supports economic strength
  • Williams: Another rate hike this year and three in 2018
  • FOMC member Harker: Three hikes still in the cards for next year
  • Harker: U.S. economy to chalk up 2% growth by year end

Major Events/Reports:

Canada’s trade balance miss

Expectations for another BOC hike have dipped once more after The Great White North printed a not-so-great trade balance. The deficit widened from 3.0 billion CAD to 3.4 billion CAD in August instead of narrowing to the estimated 2.6 billion CAD shortfall.

Looking at the underlying data reveals that the downbeat headline reading was due to an unexpected 1% drop in exports, which marked its third consecutive monthly decline.

Even though prices were up during the month, the 1.9% slump in volumes of consumer goods, basic and industrial chemical, plastic and rubber products, as well as metal ores and non-metallic minerals, more than offset these gains.

Imports were mostly flat for the month, also suggesting subdued demand on the domestic front. However, components indicated that opposing forces were in play, as imports of motor vehicles and parts rebounded 2.5% while imports of consumer goods sank 1.8% to mark its fourth monthly drop.

Upbeat U.S. data

Over in the U.S., medium-tier reports were all in the green, underscoring the Fed’s hawkish stance and keeping traders optimistic that the economy was able to power through the recent hurricanes.

Initial jobless claims edged down from the earlier 272K increase to 260K last weak, beating the consensus at 266K to show consistent momentum in hiring. Challenger job cuts sank 27% year-over-year in September or 4.4% on a monthly basis, also sending positive vibes for the upcoming NFP release.

Meanwhile, the trade deficit narrowed from $43.6 billion to $42.4 billion in August, a lower shortfall compared to the consensus at $42.7 billion. Components of the report showed that exports rose by $0.8 billion from July to August, buoyed by larger shipments of consumer and capital goods, while imports dipped by $0.4 billion on lower industrial supplies and materials.

Lastly, factory orders rebounded by 1.2% in August from the 3.3% slide recorded in the previous month. This was a couple of notches higher than the projected 1.0% increase, and that’s even without the Commerce Department isolating the effects of Hurricanes Harvey and Irma!

Hawkish remarks from Fed officials

It looks like the hawks of the Fed were out to play in the recent U.S. session as their speeches were peppered with upbeat remarks. It’s worth noting, however, that only Harker and Powell are the voting members while the rest are on the bench.

For Fed official George, further gradual rate hikes are appropriate since delaying these poses a risk to growth and financial stability. In particular, she warned that waiting too long to remove accommodation could put the U.S. at risk of recession.

Fed official Williams also pointed out that U.S. economic growth has been able to stay on track despite headwinds from hurricanes. He expressed confidence that wage growth will push inflation higher, adding that the central bank doesn’t need to necessarily wait for a huge gain in price levels to tighten again in December.

This sentiment was echoed by FOMC member Harker who admitted that he is still penciling in another hike for December. Although he also acknowledged that there are issues around U.S. inflation dynamics, he shared his support for three more hikes by next year.

Rumored-to-be-next-Fed-head Powell, on the other hand, was relatively mum about his economic assessment and monetary policy bias as his testimony focused mostly on Treasury Market Practice Group and its role in financial regulation.

Major Market Mover(s):

USD

The Greenback was the one currency to rule them all in the New York session as bulls are feeling giddy about tax reform and another Fed hike.

EUR/USD tanked from 1.1763 to the 1.1700 handle (-0.43%), GBP/USD tumbled from 1.3182 to a low of 1.3108 (-0.59%), USD/JPY popped back up to 112.88 (+0.41%), and USD/CHF is up to a high of .9795 (+0.35%).

CAD

The Loonie wasn’t having the best of days as BOC hike odds got dragged down by downbeat trade data.

USD/CAD edged higher to 1.2568 (+0.89%), CAD/JPY tumbled to 89.63 (-0.73%), EUR/CAD rallied from 1.4630 to 1.4720 (+0.63%), and AUD/CAD is up to a high of .9809 (+0.64%).

Watch Out For:

  • 1:00 am GMT: Japanese average cash earnings y/y (0.5% expected, -0.6% previous)
  • Chinese banks closed for the holiday
  • 6:00 am GMT: Japanese leading indicators (increase from 105.2% to 107.2% expected)