The Loonie took hits across the board when Canada’s monthly GDP reading came in the red while pound traders seem excited to have their positions ready for a BOE hike.
- Canadian economy contracted by 0.1% in Aug vs. projected 0.1% expansion
- Canada’s RMPI down 0.1% vs. projected 0.4% gain
- Canada’s IPPI down 0.3% vs. estimated 0.5% increase
- Chicago PMI improved from 65.2 to 66.2 vs. 60.2 forecast
- U.S. CB consumer confidence index up from 120.6 to 125.9 vs. 121.1 consensus
Canadian economy contracted in Aug
After posting a flat reading in July, the Canadian monthly GDP surprised to the downside with a 0.1% contraction the following month instead of the estimated 0.1% uptick.
Components of the report indicated that declines in manufacturing and mining, quarrying and oil and gas extraction led the drop and offset the gains in other sectors.
In particular, the manufacturing sector contracted 1.0% in August, with the non-durable component posting a 2.0% decrease after three consecutive months of growth. The mining, quarrying, and oil and gas extraction sector was down 0.8% in August, marking its third consecutive monthly decline.
On a less downbeat note, wholesale trade gained 0.4% in August, buoyed by personal and household goods wholesaling. Real estate and rental and leasing edged up 0.2% while the finance and insurance sector posted a 0.2% rebound.
BOC Governor Poloz’s remarks
With these not-so-impressive numbers from Canada, you can imagine that BOC head honcho Poloz was placed in the hot seat during his testimony, along with Senior Deputy Governor Carolyn Wilkins.
In his opening remarks, Poloz sounded optimistic in acknowledging that many of the positive trends they noted back in April have continued. He mentioned that sources of economic growth have broadened and that Canada has completed its adjustment to the oil price shock. However, he also said:
“We are at a crucial spot in the economic cycle, and significant uncertainties are clouding the way forward.”
To be specific, he said that these uncertainties comprise: inflation, the degree of excess capacity, continued softness in wage growth, and the elevated level of household debt.
Poloz also cautioned that the BOC has not incorporated “the risk of a significant shift toward more-protectionist trade policies in the United States, given the range of potential outcomes and the uncertainty about timing.”
To conclude, Poloz said that the current monetary policy stance is appropriate and they foresee less need for stimulus over time. He did say that they “will be cautious in making future adjustments to our policy rate” and “will be guided by incoming data to assess the sensitivity of the economy to interest rates, the evolution of economic capacity, and the dynamics of both wage growth and inflation.”
Major Market Mover(s):
Sterling was the top performer for the day as a bit of clarity on Brexit and pre-BOE positioning lifted the currency’s spirits.
GBP/NZD is up 193 pips to 1.9398 (+0.99%), GBP/CAD is up from 1.6948 to 1.7119 (+1.02%), GBP/AUD rose to 1.7348 (+0.98%), and GBP/USD reached a high of 1.3289 (+0.58%)
In contrast, the Loonie chalked up losses on a monthly GDP contraction and Poloz’s testimony to the House of Commons Standing committee on Finance.
USD/CAD is up 56 pips to 1.2889 (+0.44%), EUR/CAD is moving past the 1.5000 handle to 1.5010 (+0.43%), and CAD/CHF is down to .7740 (-0.10%).
Watch Out For:
- 10:45 pm GMT: New Zealand quarterly employment change (+0.8% expected, -0.2% previous)
- 10:45 pm GMT: New Zealand unemployment rate (drop from 4.8% to 4.7% expected)
- 10:45 pm GMT: New Zealand labor cost index q/q (0.7% expected, 0.4% previous)
- 11:30 pm GMT: Australia AIG manufacturing index (54.2 previous)
- 1:30 am GMT: Japanese final manufacturing PMI (no change from 52.5 expected)
- 2:45 am GMT: Chinese Caixin manufacturing PMI (no change from 51.0 expected)
- 6:30 am GMT: Australia commodity prices y/y