Despite a mixed week of data, the Canadian dollar finished slightly higher against its US counterpart by Fridays close. In a clear show of strength, the Loonie was seemingly unfazed by a weak GDP report on Thursday, and the USDCAD currency pair finished 0.3% lower by the end of the week. It will be interesting to see how the recent GDP data compares with the coming week of interest rate and employment releases.
To start off the week, the Bank of Canada is forecast to announce that it will leave central interest rates unchanged on Wednesday. Indeed, the event should effectively be a non-event, with synthetic interest rate forwards pricing in a 0% chance of any possible moves. Forex traders will instead pay more attention to the statement attached to the rate decision for clues as to where the bank may head in the future. Although the subsequent comments are typically not the long-winded question and answer sessions that follow ECB releases, BoC Governor David Dodge will likely comment on the Banks stance on recent developments in the overall economy and price inflation. On the following day, government officials will divulge Building Permits growth and Ivey PMI survey results for the months of July and August, respectively. Buildings data will likely show that the overall series will continue on its overall downward path after peaking at 27.6% growth in December 2005. Shortly after, analysts expect that the Ivey Purchasing Managers Index reading will move slightly higher to 61.0 from 60.1 in July. It will be interesting to see how this compares with Industrial and Raw materials price data for July. This past Wednesdays releases showed that industrial producers received 1.7% more for their goods in July, while Raw Materials prices gained 5.2% in the same period. The data suggests that gains in input prices have recently outweighed hikes in the costs of finished goods, but we will wait to see if the upcoming PMI release reflects weakened optimism on the matter. Finally, labor officials will announce employment data at 07:00 EST on Friday morning. Though employment is typically viewed as a lagging indicator of economic health, it is nonetheless Canadian Dollar bullish to see that median estimates predict a drop in the headline unemployment rate. Likewise significant, payrolls are predicted to have added 20.0k jobs on the month versus a drop of 5.5k in July. It should be interesting to see whether the combination of a pickup in price action through the first week of September and some key economic reports will be enough to drive the USDCAD out of its 4-month range.
The past week of economic data provided little reason for the Canadian Dollar to trade higher, but the Loonie seemingly defied intuition and finished slightly stronger against the US Dollar nonetheless. August 30th saw the release of two price indices as well as the Canadian Balance of Payments report. Industrial Prices saw their largest gain since February of 2004, led by metal and energy products. Median analyst estimates had called for a 0.6% gain, but a surge in prices paid for utilities led the measure considerably above forecasts. Likewise in July, Raw Materials prices added an impressive 5.2% on surging crude oil and metals costs. The data was deemed not enough to outweigh a bearish Balance of Payments report, however, as the Canadian dollar finished lower on the day of trading. Though analysts had predicted a declining surplus on lower export growth, median forecasts expected a more moderate decline from C$10.7 billion to C$6.1 billion. Not only were the first quarter numbers revised down to C$8.2b, however, the Q2 figure also disappointed at $C4.19b. This did not bode well for the national currency, which lost as many as 40 points following the release. The poor data continued on until Thursday, when officials announced that Canadian GDP had grown less than expected and previously stated in the first half of the year. The headline growth rate fell 1.6 percentage points in Q2 from a revised-lower 3.6% rate in the first three months of the year. In fact, the economy posted zero growth in the month of June, with the monthly change at exactly 0.0%. Subsequent price action seemed to defy logic, however, as the USDCAD actually dropped significantly on the day. Indeed, despite lower oil prices, the Loonie remained nearly unchanged against the US dollar, instead adding approximately 30 points by weeks end.
