Dollar Boosted by Yields, Canadian Weighed Down by Job Data

Dollar rises broadly today and it’s set to end as the strongest one. Strong rally in treasury yield, with 10-year yield now at 1.95, is giving the green back solid support. Stock futures point to mixed open, but could easily extend recent record run if there is more positive news regarding US-China trade deal before close. As for today, commodity currencies are generally pressured. In particular, Canadian dollar is weighed down by weaker than expected job and housing data.

Technically, USD/CAD breaks 1.3208 temporary top to resume rise from 1.3042. That’s another sign of Dollar strength following EUR/USD, USD/JPY and USD/CHF. Ideal, we should seen AUD/USD heading back to 0.6809 minor support next week to align the outlook with other Dollar pairs. GBP/USD would likely be the only exception, as it should remain consolidative, awaiting UK election next month.

In Europe, currently, FTSE is down -0.49%. DAX is down -0.43%. CAC is down -0.29%. German 10-year yield is down -0.001 at -0.235. Earlier in Asia, Nikkei rose 0.26%. Hong Kong HSI dropped -0.70%. China Shanghai SSE dropped -0.49%. Singapore Strait Times dropped -0.65%. Japan 10-year JGB yield rose 0.0258 to -0.060.

Canada employment and housing data missed expectations

Economic data from Canada are generally disappointing today. Most importantly, employment contracted -1.8k in October, versus expectation of 14.7k growth. Unemployment rate was unchanged at 5.5%, matched expectations. Also released, building permits dropped -6.5% mom in September versus expectation of -1.9% mom. Housing starts dropped to 202k in October, below expectation of 220k.

RBA SoMP: Economic projections largely unchanged

In the Monetary Policy Statement, RBA said the economy is “gradually coming out of a soft patch” with GDP growth recovering. Outlook is largely unchanged from three months again, supported by low interest rates, tax cuts, ongoing infrastructure spending and upswing in house prices. Labor markets “has been resilient”, but unemployment will still be “somewhat short of” estimated full employment rate of around 4.5%. Inflation remains “low and steady”, and it’s expected to pick up “only gradually”.

RBA also noted that the board was “mindful that rates were already very low and that each further cut brings closer the point at which other policy options might come into play.” And, further easing could “unintentionally convey an overly negative view of the economic outlook”. After three rate cuts this year, RBA stood pat in November, and this “allows time to assess the effects of the recent easing of monetary policy as well as global developments.” But the central also pledged it’s “prepared to ease monetary further if needed”.

The new economic projections are largely unchanged. GDP growth is forecast to average 1.75% in 2019 (revised down from 2.00%), 2.75% in 2020 (unchanged), 3.00% in 2021 (unchanged). Unemployment rate is forecast to be at 5.25% by end of 2019 (unchanged), 5.25% by end of 2020 (unchanged), 5.00% by end of 2021 (unchanged). CPI if forecast to be at 1.75% by end of 2019 (unchanged), 1.75% by end of 2020 (unchanged), 2.00% by end of 2021 (unchanged).

Also from Australia, home loans rose 1.4% in September, below expectation of 2.1%. Released from Japan, labor cash earnings rose 0.8% yoy in September, above expectation of 0.1%. Household spending rose 9.5% yoy, above expectation of 7.1% yoy. Leading indicator rose to 92.2, up from 91.9.

China trade surplus widened to USD 42.8B, much less than expected exports contraction

China’s trade surplus came in larger than expected at USD 42.8B in October. Both exports dropped much less than expected over the year. But contraction in imports were slightly larger. Looking at some details, contraction in imports to the US was more than double of exports, year-to-October. Imports from EU merely grew 0.1% ytd yoy.

In USD terms, in October: Total trade dropped -3.4% yoy to USD 383.0B. Exports dropped -0.9% yoy to USD 212.9B, versus expectation of -5.2% yoy. Imports dropped -6.4% yoy to USD 170.1B, versus expectation of -6.1% yoy. Trade surplus widened to USD 42.8B, versus expectation of USD 40.6B.

Year-to-October: Total trade dropped -2.5% yoy to USD 3736B. Exports dropped -0.2% yoy to USD 2038B. Imports dropped -5.1% yoy to USD 1698B. Trade surplus came in at USD 340B.

With EU, year-to-October: Total trade rose 3.1% yoy to USD 579.6B. Exports rose 5.1% yoy to USD 352.8B. Imports rose 0.1% yoy to USD 226.8B. Trade surplus came in at USD 126.1B

With US, year-to-October: Total trade dropped -14.9% yoy to USD 447.8B. Exports dropped -11.3% yoy to USD 347.8B. Imports dropped -25.4% yoy to USD 100.0B. Trade surplus came in at USD 247.8B.

USD/CAD Mid-Day Outlook

Daily Pivots: (S1) 1.3157; (P) 1.3177; (R1) 1.3194; More…

USD/CAD’s rebound from 1.3042 resumed by taking out 1.3208 and reaches as high as 1.3231 so far. Intraday bias is back on the upside for 1.3347/82 resistance zone next. on the downside, break of 1.3159 minor support will turn intraday bias neutral again first. For now, further rally would remain in favor as long as 1.3042 support holds.

In the bigger picture, 38.2% retracement of 1.2061 to 1.3664 at 1.3052 remains intact. Medium term rise from 1.2061 low is in favor to resume sooner or later. Firm break of 61.8% retracement of 1.4689 (2016 high) to 1.2061 at 1.3685 will confirm and target 1.4689 high. However, sustained break of 1.3052 will confirm completion of up trend from 1.2061 (2017 low). Further fall should be seen to 61.8% retracement at 1.2673 next.

Economic Indicators Update