The Canadian dollar is higher on Wednesday on a surprise surge in manufacturing sales. Canadian manufacturing sales jumped 1.6 percent in August. The positive gain broke a trend of two negative readings with advances in 8 of the 21 industries. The auto sector was the biggest driver of the recovery. The forecast called for a contraction and the surprise to the upside boosted the loonie that was on its way to appreciate after a NAFTA setback earlier in the week.
Falling oil inventories in the US reversed a downtrend in crude prices. The Energy Information Administration (EIA) reported a drawdown of 5.7 million barrels beating a forecast of a 4.7 million decline. The comments from the Iraqi prime minister had prices lower as the disruption of oil supply for the region was restored with security restored to Kirkuk.
Canadian Foreign Affairs Minister Chrystia Freeland was part of a trilateral press conference on Tuesday at the end of hte fourth round of trade talks. Freedland said that the demands from the United Sates are making the negotiation more challenging. The US trade representative Robert Lighthizer stuck to his mandate by President Trump and focused only on reducing America’s trade deficits. The Mexican representative tried to be more amicable and stressed that the process does not have to end with a lose-lose result.
The USD/CAD lost 0.40 percent on Wednesday. The currency pair is trading at 1.2468 with a rising loonie recovering from a NAFTA negotiation nearing deadlock as the three nations remains too far apart on big issues. The Canadian dollar has been one of the best in the last six months. The CAD has appreciated 7.36 percent in that time frame due to strong economic growth and two rate hikes by the Bank of Canada (BoC). The slowdown in GDP gains came at the same time NAFTA talks are entering into the more difficult issues. The US had warned it would not back down in its effort to reduce trade deficits and had already increased tariffs for some Canadian goods.
The surprise gain in manufacturing sales could be followed by a better than expected data on retail sales and consumer price index to be released on Friday, October 20. Housing data was weak in the US on Wednesday with building permits coming in lower than expected at 1.22 million and housing starts also underperforming expectations at 1.13 million. The biggest question marks around the US remain on the political realm with the name of the next Fed chair still unknown and the tax reform effort failing to take off as it faces harder scrutiny.
The Bank of Canada (BoC) will issue its monetary policy report and rate statement on Wednesday, October 25 at 10:00 am. There are less than 20 percent probabilities of a rate hike in October after the central bank took the market by startled investors when October seems to be the more likely meeting to announce the second rate hike. Governor Stephen Poloz will host a press conference at 11:15 am EDT. The BoC was criticized for its lack of warning on the October rate move given that in June it had gone all out to get the market onside with the eventual July lift in the Canadian benchmark rate
Oil is flat on Wednesday. Crude prices were higher after the release of the larger than expected drawdown in US inventories and rumours that the Organization of the Petroleum Exporting Countries (OPEC) is seeking a 9 month extension to the current production cut deal. Less supply drove up prices, with West Texas Intermediate crossing the $52 price level. WTI could not hold the gains and with higher gasoline and distillate stocks.
The oil rich province of Kirkuk is now in the hands of the central Iraqi government with supply set to resume to normal levels. The situation in Northern Iraq had put oil at a premium alongside the return of US economic sanctions to Iran that would limit global supply.
Market events to watch this week:
Thursday, October 19
4:30am GBP Retail Sales m/m
8:30am USD Unemployment Claims
Friday, October 20
8:30am CAD CPI m/m
8:30am CAD Core Retail Sales m/m
7:15pm USD Fed Chair Yellen Speaks
