The Canadian dollar depreciated on Thursday on the back of the divisive US Tax reform gaining traction after receiving the backing of Republican Senator John McCain. The Canadian current account deficit grew to 19.35 billion Canadian dollars in the third quarter. The third largest deficit resulted from a drop in exports of goods and motor vehicles with services remaining unchanged.
The USD/CAD remains close to the 1.29 price level ahead of the release of the monthly Canadian GDP numbers and the change in jobs data to be released at 8:30 am EST on Friday, December 1. The US jobs data will be released next week leaving the Canadian jobs data to steal the spotlight, but there are concerns after the new ADP report showed the economy losing 5,700 positions in October versus the 35,000 added jobs reported by Statscan. The official figure released by Statscan will be followed by investors on a quiet data release Friday with a forecast that calls for a gain of 10,000 positions in November.
The USD/CAD gained 0.26 percent on Thursday. The currency pair is trading at 1.2896 as the USD moved higher against commodity currencies on the back of the progress on US tax reform. The Senate bill has gained backing from some undecided Republican Senators, most notably Sen John McCain. The White House needs 52 senators to back the bill to pass it given the unified opposition from Democrat Senators.
The loonie has been on the back foot this week with the USD gaining 1.53 percent in the last 4 days on the market optimism that the Trump Administration could score a victory. Expectations of a rate hike by the U.S. Federal Reserve in December are high, and already priced into the pair, but the Bank of Canada (BoC) is seen more dovish by the minute. A new Reuters survey of 30 economists shows that there is little expectation of a rate move by the Canadian central bank in December, and a third see April at the earliest.
Factors such as the precarious state of the NAFTA renegotiations and evidence of the economy slowing down have cooled the BoC’s desire to reduce further stimulus worried about the effect of higher interest rates on borrowers that hold record high levels of debt. The two data releases on Friday could confirm the headwinds facing the loonie, or in case they over perform expectations give the currency a boost against the US dollar.
Oil was volatile on the eve of the Organization of the Petroleum Exporting Countries (OPEC) announcement of a production cut agreement extension. West Texas Intermediate is trading at $57.23 after oil producers agreed to extend the duration of their production reduction by 9 months. The 1.8 million cut in daily barrels will continue until the end of 2018. The market had already priced in such a move after numerous statements and comments from Energy Minister from OPEC and non-OPEC alike. Despite the united front there are various calls within the bloc to look for an exit strategy. Russia in particular is keen to get back to full production, but for now will seek stability than profits.
Nigeria and Lybia who were exempt from the original production cut have now been limited to not exceed the levels from this year as compliance within the group will be a challenge.
US shale producers continue to ramp up production and free from weather disruptions will put pressure on crude prices that have been boosted by the effort put forth by the OPEC. The technology advances that made oil extraction cheaper created a sudden drop in prices as the OPEC sought to price them out of the market in a strategy that backfire by exchanging market share for profits.
Diplomatic stability within the producers organization will prove to be difficult as Saudi Arabia has taken a more aggressive role in domestic and regional politics which could pit it against number two and three producers Iraq and Iran.
Market events to watch this week:
Friday, December 1
- 4:30am GBP Manufacturing PMI
- 8:30am CAD Employment Change
- 8:30am CAD GDP m/m
- 10:00am USD ISM Manufacturing PMI
*All times EDT
