The Canadian dollar is lower on Thursday after trade data in Canada showed a larger deficit. Exports continue a downward trend and as many economists have predicted the Canadian economy is losing momentum. The story was different for the US trade balance, that showed a rise in exports and boosted the USD to multi week highs.
The USD/CAD gained 0.74 percent in the last 24 hours. The currency pair is trading at 1.25688 after trade data in the US surprised to the upside with rising exports while a different story played out in Canadian figures. The Canadian trade deficit widened in August with exports falling for a third month in a row.
Economists have warned that the Canadian economy is cooling down after an impressive first half of 2017. Two rate hikes and impressive growth took the loonie to appreciate versus a struggling USD. A third rate hike is losing ground in the eyes of the market. The Bank of Canada (BoC) cut rates by 50 basis points in 2015 and it wasn’t until their assessment of the economy improved in 2017 that they have hiked twice to leave the benchmark rate at 1.00 percent.
Tomorrow’s job releases in Canada and the US will be telling on how the two economies are acting in tandem or breaking apart. The tropical storms in the US could obfuscate the jobs situation in the US while in Canada there are growing concerns about the rate of full time job losses. The headline number in Canada has been steady, but thanks to part time positions. Jobs in Canada are expected to have gained 13,900 positions in September.
The US dollar is trading near seven week highs as economic data has been solid, the central bank is still pushing for a third rate hike and the tax reform proposal is moving forward. Leading manufacturing and non manufacturing indicators have improved and rising exports have shrunk the trade deficit to a yearly low but questions remain on the effect the tropical storms will have on the biggest economic indicator in the market.
The U.S. Bureau of Labor Statistics will release the non farm payrolls (NFP) report on Friday, October 6 at 8:30 am EDT. The economy is forecasted to have added 82,000 positions in September. The impact of hurricanes Harvey and Irma is to blame for the underperformance but given the resilience of the economy the possibility of the final figure beating expectations is not far fetched.
The ADP private payrolls report came in close to the forecast with 135,000 jobs and unemployment claims rose by 260,000 when a 266,000 gain was anticipated. Fed FOMC voting members were in full force this week and today’s comments from Philadelphia Fed chief Patrick Harker that while the 2 percent inflation target will remain untouched he still believes there should be another rate hike. The CME FedWatch tool shows a 86.7 percent probability of the interest rate moving higher to a 125 to 150 basis points range.
Oil rose 2 percent on Thursday. West Texas Intermediate is trading at $50.55 after Russia and Saudi Arabia sent signals to the market about a potential extension to the production cut agreement between the Organization of the Petroleum Exporting Countries (OPEC) and other major producers. The two nations have acted as representatives of the two groups and limiting output could force prices higher with the biggest question mark being how are the non-pact producers going to react and if their production increases can offset the output curbs.
Uncertainty about the Iran nuclear deal is also pushing prices higher. President Trump could introduce another embargo to Iranian exports, energy included, reducing global supply.
Market events to watch this week:
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
