The Canadian dollar appreciated versus the US dollar on Wednesday. Economic indicators were scarce in Canada, with the spotlight firmly on the start of the jobs reports to be delivered this week. The private payrolls processor ADP showed a gain of 135,000 jobs in September. It was inline with expectations, although there was a slight downward revision to August of 9,000 positions. The non-manufacturing PMI followed in the path of the manufacturing sector with a overachieving 59.8 index when only 55.5 was expected. The ISM reported a 93rd consecutive gain and the highest since August 2005. Inflationary pressures are present with a rising price index that grew 8.4 percent points since August.
The USD was not able to take advantage of solid economic releases as the political strife that has plagued the current administration once again was present. Uncertainty about the next Fed chair is keeping market watchers from predicting what a new look Fed could be in 2018. The short list includes Gary Cohn, Kevin Warsh, Jerome Powell, John Taylor and surprisingly Janet Yellen is still in the running.
The media has paid too much emphasis on the disorganization of the Trump administration where even Rex Tillerson has to go on the record that he did belittle the president and was never intending to quit his post as Secretary of State. The political cloud is keeping the USD lower even as other parts of the world do not have the same growth prospects, but they do have a more stable leadership.
The USD/CAD lost 0.192 percent on Wednesday. The currency is trading at 1.2482 with the loonie regaining some ground after the USD got a temporary boost from purchasing managers in the service sector. US yields are higher as there is still no front runner for the Fed Chair job. The rumour mill and off the cuff comments have made anyone and everyone a candidate. Yellen is still in the running and did not comment on monetary policy today in St. Louis. The Trump’s administration short list does not take anybody off the running, but the fact that known doves are on it has not done the greenback any favours.
The Canadian trade deficit is expected to keep shrinking as the rise of the CAD has cut down import prices. The Trade balance for August will be released on Thursday, October 5 at 8:30 am EDT. Last month the deficit shrank to $3 billion and is forecasted to come in at 2.6 billion. In a day with few economic data releases the Canadian trade balance will impact the USD/CAD but could end up being eclipsed by FOMC member comments. In particular those that are on the short list for the Chair position like Jerome Powell.
The US trade balance will also be released on Thursday, and with the emphasis on trade imbalances by the Trump administration it will be a talking point during NAFTA renegotiations. The US deficit is expected to have shrunk as the effects of Hurricane Harvey would affect the trade during August.
Energy prices rose 0.329 percent in the last 24 hours. The price of West Texas Intermediate is trading $50.32 after the US weekly crude inventories showed a larger than expected drawdown of 6 million barrels. Forecasters were calling for a drop of 500,000. Crude prices rose after the news, but had to setlle for lower gains after Libya has restarted its largest field that was taken offline over the weekend by rebel forces.
Russian Energy Minister in Moscow was supportive of an extension from Organization of the Petroleum Exporting Countries (OPEC) and other major producers to keep cutting production, but the final decision will depend on the market. Russian President Vladimir Putin was also part of the Russian Energy Week Forum and said that the deal could be extended to 2018.
Market events to watch this week:
Thursday, October 5
8:30 am CAD Trade Balance
8:30 am USD Unemployment Claims
Friday, October 6
8:30 am CAD Employment Change
8:30 am CAD Unemployment Rate
8:30 am USD Average Hourly Earnings m/m
8:30 am USD Non-Farm Employment Change
8:30 am USD Unemployment Rate
