USDCAD news - page 8

Canadian Factory Orders Surprise With Strong Auto Industry in December

Canada's December manufacturing data beat estimates, shocking the markets with strong gains, led by the auto industry sales.

Manufacturing sales surged 1.7% to $52.4 during the last month of the year, putting an end to a downward streak, Statistics Canada reported on Friday. The freshly released figures surpassed analysts' consensus, which estimated to see a rise of 0.9%. Meanwhile, November's data was revised upwards to a fall of 1.3%.

Shipments showed strong results, despite a large fall in petroleum and coal sales. Excluding the weak industry, sales were up 3.2%. Volumes also rose a healthy 2.9%, reflecting a “sharp drop in prices for refined petroleum products,” federal agency noted.

- Auto strength

Transportation industry was the largest contributor to better monthly sales, with motor vehicles and parts sales surprising on the upside, rising 9% and 4.9%, respectively.

Machinery sales also grew a hefty 5.2% - the most in over three years – on mining, oil and gas field equipment, which was ordered in several months ago. Other increases included food and chemical products sales.

The positive numbers were offset by the declining shipments in the petroleum and coal industry, down 9.3% - the biggest drop in six years. The vast majority of the decreases were in the refined petroleum products. Interesting to note that the percentage drop was a reflection of lower prices, not a decline in products sold.

The most populated province of Ontario and French-speaking Quebec recorded the best results, while Saskatchewan and Alberta reported losses.

Other parts of the report revealed inventories falling 1.4%, led by lower stocks in the petroleum and coal as well as auto industries. The inventory-to-sales ratio, which measures how long it would take to deplete stockpiles if sales were to stay at their current levels, decreased to 1.34 from 1.38.

In terms of future sales, unfilled orders edged up 0.3% and new orders jumped 1.5%, largely due to stronger activity in the transportation equipment industry.

- Trade, BoC

In other relevant data, Canada posted third trade gap in a row amid surging imports of energy products and slower rising exports, up 2.3% and 1.5%, respectively, which led to a $649 million deficit during the last month of the year.

Meanwhile, the Bank of Canada (BoC) shocked the markets in January, as it cut its key interest rate to 0.75% and slashed its inflation and growth projections, citing negative effects of lower oil prices.

The bank added that a drop in crude prices will hinder Canada’s business investment in the energy-producing sector, as well as weaken the nation’s terms of trade, which would impact incomes, wealth, and decrease domestic demand growth.

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USD/CAD: Loonie Trims Losses After FOMC

The Federal Open Market Committee (FOMC) meeting minutes weakened the US dollar, leading the USD/CAD pair to lose some of the previous gains. However, lower oil prices kept the Canadian dollar below Tuesday’s closing level.

The loonie recovered somewhat, trading down just 0.13% at C$1.2406 against the greenback, after reaching the low of C$1.2463 earlier in the session.

The FOMC meeting minutes showed that the majority of Fed policymakers prefer for rates to stay lower for longer to protect the apparently solid recovery. This means that the ‘patience' reference is likely to remain in the Fed statements for some time.

The minutes revealed the thinking behind the Fed’s latest meeting on January 27-28, after which the central bankers concluded that a rate hike in the summer of 2015 is not excluded.

Their "no change in stance" weakened the greenback all across the board, despite minutes pointing to a solid economy and strong job growth.

Meanwhile, oil prices continued to pressure the commodity-based loonie. WTI futures declined 2.19% to $53.10 per barrel, while futures for Brent dropped 2.75% to $60.81 per barrel. Both benchmarks were accelerating, gaining around 20% this month, until today's session.

Macro data

Traders are closely monitoring Friday’s Canadian retail trade data release, with analysts estimating a fall of 0.4% in December, which could put further pressure on the loonie. Lower oil prices are projected to have the biggest impact on the data.

"That result will in fact be influenced by the dramatic fall in gasoline prices, which were off by close to 9% in the month," CIBC World Markets economist Nick Exarhos said in a note.

Other macro data released during the North American session had little impact on the currency pair. Canadian wholesale trade surprised on the upside, soaring the most in nearly four years and reaching a new record dollar value of $55.4 billion in December. The auto industry hit record breaking levels during the month, contributing significantly to trade by rising 9%.

Meanwhile, the latest figures out of the US revealed that housing starts declined 2% to 1.65 million in the first month of this year, while building permits showed a drop of 0.7% to 1.053 million over the same period, with both figures missing estimates.

Also, the US producer prices posted flat year-on-year figures in January, while a rate of -0.8% was recorded on a monthly basis, also worse than analysts had projected. US industrial production grew 0.2%, beating estimates of a 0.3% decline.

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Canadian dollar hangs in the balance on LNG deals

Petronas could spend $36 billion to export Canadian LNG

Canada went from a big favourite to a major underdog in the battle to export liquified natural gas to Asia but the government is beginning to fight back. On Friday, the Federal government announced an investment tax break for LNG and earlier this year the provincial government also brought in incentives in late 2014.

The big fish is Malaysian state energy company Petronas. They estimate $36 billion will need to be spent to achieve planned exports by 2019, include two major pipeline projects.

The Globe & Mail reports that BC provincial leaders will meet with top executives from Petronas in March but a deal already deeply in peril. In Dec, Petronas placed the venture on hold indefinitely.

A final decision will be made some time after June, when environmental assessments are due.

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Loonie Spikes as Poloz Hints Follow-Up Cut Unlikely

The Canadian currency ended a four-day losing streak and rallied more than 100 pips on Tuesday afternoon following comments from Bank of Canada Governor Stephen Poloz.

He hinted that the central bank might take a wait-and-see approach at the upcoming March 4 meeting after last month's surprising rate cut.

Most recently, the USD/CAD pair traded with a loss of 0.49% on the day at C$1.2505 against the US dollar. The Canadian dollar tested the C$1.25 threshold against the greenback after the governor's remarks, rallying some 110 pips within an hour.

Speaking at the Western University in Ontario, Poloz said the "decision to lower the policy interest rate last month was intended to take out some insurance" against a deteriorating inflation and financial stability outlook in light of the collapse in oil prices.

"The downside risk insurance from the interest rate cut buys us some time to see how the economy actually responds," the governor said.

Just a few hours earlier, the loonie had fallen to C$1.266, its lowest level since February 11, as traders digested the first public remarks of Federal Reserve Chair Janet Yellen in two months.

The leader of the US central bank sounded confident that inflation would move back toward the 2% target later this year, opening up the possibility of a rate hike later this year. If all goes according to plan, Yellen said the policy committee could "begin considering an increase in the target range for the federal funds rate on a meeting-by-meeting basis."

Her comments, delivered as part of a two-day testimony before Congress, stood out on the hawkish side particularly when compared against the latest meeting minutes released last week.

Still, Yellen tried to preserve some wiggle-room as well, saying that even if the policy panel dropped the promise to be patient before the rate lift-off, it would not automatically signal an increase in the target range in a couple of meetings.

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Traders say lack of Bank of Canada guidance fuels volatility

When Bank of Canada Governor Stephen Poloz abandoned a policy of offering forward guidance on interest rates last year, he said telling traders explicitly what's going to happen can boost volatility as it spurs a rush for the exits when things change.

But traders say that so far the policy shift has in fact increased volatility with the central bank blindsiding markets with its surprise rate cut in January, and then catching them off guard again this week with comments by Poloz suggesting it will hold rates steady next month.

"How fast the market is flip-flopping around on interest rates in Canada has been quite remarkable," said Amo Sahota, director at Klarity FX in San Francisco.

When Poloz set out his reasons for eliminating forward guidance in a paper (bit.ly/1LQhJPC), he said one of his goals was "to shift some of the policy uncertainty from the central bank's plate back unto the market's plate".

By offering transparency on the economic risks the central bank is weighing, the idea is that markets will trade off new data and become "two-way and less vulnerable to unusual leveraging and volatile shifts".

Poloz reiterated on Tuesday that it is healthier for the central bank to lay out how it sees the economy and then let markets draw conclusions about rates.

Drawing such conclusions hasn't been easy for traders, partly because of what they perceive as the bank's mixed messages.

Just a week before the oil-price-driven rate cut in January, Deputy Governor Tim Lane said the plunge in crude prices would not have a drastic impact on growth in Canada, a major oil exporter.

After the 25-basis-point rate cut, designed to stimulate the economy, and after what was seen as a dovish speech by Senior Deputy Governor Carolyn Wilkins on Feb. 10, investors ramped up their bets on another rate cut to more than a 70 percent probability.

Those bets dropped to less than 30 percent after Poloz's comments on Tuesday.

CIBC World Markets director of foreign exchange strategy Bipan Rai noted the Canadian currency's trading range has been the widest in years recently.

"Whenever there is now a Bank of Canada speaker on the data calendar, everyone goes into duck-and-cover mode because they don't have any inclination of what could come out," said Brad Schruder, director of foreign exchange sales at BMO Capital Markets.

"The reputation of the bank might be more important than their actual stewardship, and right now it is net-net not extremely positive."

To be sure, not all market participants see volatility as bad. "The lack of forward guidance makes for a slightly hairier market but in some ways that means more opportunity," said Adam Cole, global head of foreign exchange strategy at RBC Capital Markets in London.

The Bank of Canada declined to comment, citing a self-imposed blackout period ahead of its March 4 rate decision.

Schruder said the volatility can have real-world consequences, cutting into the available credit that companies have to hedge foreign exchange exposure.

Greater uncertainty has also driven some participants out of the market for the Canadian dollar, which can reduce liquidity and fuel more violent moves, he said.

"It's not like the Bank of Canada should lead the market by the hand, but most certainly given the lack of actual data signals that triggered the move, without forward guidance, markets don't have very much to go on at this point," said Emanuella Enenajor, Canada and U.S. economist at Bank of America-Merrill Lynch in New York.

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USD/CAD almost unchanged after weak U.S., Canadian data

The U.S. dollar was almost unchanged against its Canadian counterpart on Monday, after disappointing U.S. personal spending data, although a downbeat report on Canada's current account dented demand for the local currency.

USD/CAD hit 1.2477 during early U.S. trade, the session low; the pair subsequently consolidated at 1.2514.

The pair was likely to find support at 1.2388, the low of February 26 and resistance at 1.2624, the high of February 23.

In a report, the Commerce Department said that U.S. personal spending fell 0.2% in January, worse than expectations for a decline of 0.1%. Personal spending dropped 0.3% in December.

The report also showed personal income rose 0.3% in January, below forecasts for a 0.4% increase and after gaining 0.3% in December.

Meanwhile, in Canada, official data showed that the country's current account deficit C$13.9 billion in the fourth quarter of 2014 from C$9.6 billion in the third quarter, whose figure was revised from a previously estimated deficit of C$8.4 billion.

Analysts had expected the current account deficit to narrow to C$7.4 billion in the last quarter.

The loonie was lower against the euro, with EUR/CAD rising 0.32% to 1.4054.

In the euro zone, data showed that the annual rate of consumer inflation declined 0.3% in February, better than forecasts for a drop of 0.4%, following a 0.6% decline the previous month.

Core inflation, which strips out food and energy costs, was unchanged from January at 0.6%.

Another report showed that the euro zone’s unemployment rate fell to 11.2% in January, down from 11.3% in December. It was the lowest level since April 2012.

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USD/CAD: Loonie Edges Higher as Traders Position Before GDP, BoC

The Canadian dollar was lifted on Tuesday as markets waited for upcoming Canadian GDP data on Tuesday and the Bank of Canada’s (BoC) interest rate announcement on Wednesday.

The loonie edged up 0.10% to C$1.2524 against the greenback, after it briefly rose above the C$1.25 resistance area and reached an intraday high C$1.2490.

Canada’s economy is expected to grow at a slower pace in the fourth quarter, restrained by residential investment and disappointing trade figures, with lower oil prices beginning to affect the economy.

The GDP in Canada is forecast to rise 2% over the past year in fourth-quarter, after an advance of 2.8% in the previous quarter, according to estimates, which is significantly below the BoC's projection of 2.5% growth for the quarter.

December’s month-on-month GDP is forecast to climb 0.2%, after a contraction of 0.2% in the previous month.

Canada's current account deficit expanded more than expected in the fourth quarter, largely led by a deteriorating trade balance that was triggered by falling oil prices, an official release showed on Monday.

Meanwhile, the highly anticipated BoC interest rate statement is likely to reveal on Wednesday that the central bank is keeping its benchmark rate at 0.75%, after unexpectedly lowering it down in January.

The majority of the analysts have changed their forecasts to 'no interest rate change' after a speech by BoC Governor Stephen Poloz last week, which hinted that the January rate cut has bought the bank some time to see how the economy actually responds.

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Canadian GDP rises 0.3% – USD/CAD falls

The Canadian economy grew at a higher pace than expected: 0.3% in January.

USD/CAD falls below 1.2460.

Canada was expected to report a growth rate of 0.2% for January 2015, following a drop of 0.2% in December 2014. The RMPI was expected to fall 6.2% and the IPPI to slide by 0.9%.

USD/CAD traded around 1.25 towards the publication.

Here is the preview: USD/CAD: Trading the Canadian GDP

The prices of oil have had a material impact on the C$, and recently they have been mixed: Brent crude oil has advanced and recovered while WTI is at lower ground around $50.

The Bank of Canada convenes tomorrow to make its rate decision after the surprising rate cut announced in late January. Will they cut again? The odds say that Poloz and his colleagues will leave the rate unchanged at 0.75%.

USD/CAD makes a clear breakout after strong NFP

The Canadian dollar had its moments in the sun, enjoying positive Canadian data and a more upbeat message from the BOC. All this was not enough against the mighty US dollar: the excellent Non-Farm Payrolls report from Canada’s southern neighbor sent the greenback soaring, and USD/CAD followed.

As the chart shows, Dollar/CAD broke out of the trading range and reversed its falls. Can it challenge even higher levels?

The pair is currently trading around 1.26, after already hitting the highs of 1.2622. Not too long ago, we had seen it trading well below 1.25.

It is interesting to see the loonie react in a better manner to Canadian and US fundamentals, rather than to the price of oil.

The black gold dominated the pair for quite some time, but as prices have stabilized, fundamentals have a better say.

The big caveat in the case of the US jobs report is the poor wage growth: only 0.1% m/m and 2% y/y. We are not seeing an acceleration. Not yet.

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Canada’s Housing Starts Signal Sudden Slowdown

Canadian housing starts fell more than expected in February, signaling a decline in the robust activity recorded in January.

The seasonally adjusted annual rate of housing starts dropped to 156,276 units during the second month of the year, down from the downwardly revised 187,025 posted in January, the Ottawa-based Canada Mortgage and Housing Corp (CMHC) said in a report. The newly released data fell short of analysts’ consensus of 178,000.

"The trend in housing starts decreased for a fifth consecutive month in February and reflects a decreasing trend in multiple starts," chief economist at CMHC’s Market Analysis Centre, Bob Dugan, said in the release. "The declining trend in multiple starts is helping to gradually erode the inventory of completed and unsold units, which is high compared to historical levels."

The main contributor to the decline was multiple urban starts, while single-detached urban starts also fell.

In other recently released related data, January’s building permits dropped more than expected in Canada, dragged down by the non-residential sector in Alberta, British Columbia and Ontario.

Builders took out $6.1 billion worth of permits during the first month of the year, down 12.9%, after the downwardly revised 6.1% advance in the previous month, Statistics Canada reported last week. Analysts estimated to see a marginal decline of 4%.

The leading factor behind the weak monthly numbers was the non-residential sector, down 22.8%, with all of its three components posting declines. Meanwhile, residential permits also decreased 7% in January.

The markets are curious to see how the Bank of Canada’s (BoC) move to lower the interest rate to 0.75% back in January will impact further consumer borrowing, especially after the bank highlighted the nation's household imbalances as one of the central concerns for the country's financial stability.

In the latest interest rate announcement last week the central bank left the rate unchanged, stating that inflation and economic growth have behaved as projected in January's Monetary Policy Report.

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