Canada’s November’s growth number on Friday hit expectations of a +0.2% monthly gain. On the face of it all looked fine, however, the sub-indices happened to push the CAD to a new intraday low. The energy sector reported its usual strength, but both the manufacturing and agriculture categories declined and pushed the loonie through the psychological 1.12 handle for the first time in five years.
Will the monthly growth headline be enough to suppress the idea that Governor Poloz at the Bank of Canada is contemplating a rate cut to promote economic growth? The BoC has made its next monetary choice explicitly data dependent and a growth print like this would suggest a hike rather than an ease in monetary policy. The weak is doing the BoC work, as the underperforming currency will eventually push the country’s tepid inflation rate higher.
Certainly not helping policy makers in the relative weak jobs situation. StatsCan reported earlier this month that Canada lost -46k jobs in December, pushing the unemployment rate to +7.2%. New data this week revealed that Canada lost -27.6k jobs in November rather than the reported gain of +21k in their highly coveted ‘labor market report.’ The new data – based on a census of Canada Revenue Agency data and a survey of 15,000 employers — is considered by economists to be more reliable, but not reported on as heavily as the touted labor report. Despite the reports long-term trends remaining the same will the revision shown up next week and cause more problems for the loonie?
The loonie is closing out the week on the front foot, mostly on the back of month end-demand. Earlier, the CAD had taken a beating from the dollar bulls who used GDP as an excuse to push their way through option barriers at 1.12 and weak stops in the high twenty’s. The commodity sensitive currency continues to remain vulnerable, lobbed into the underperforming commodity basket that has been hurt by China’s questionable growth potential. Dollar buyers lurk on on all CAD rallies.
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* USD ISM Manufacturing
* AUD Reserve Bank of Australia Rate Decision
* NZD Unemployment Rate
* GBP Bank of England Rate Decision
* EUR European Central Bank Rate Decision
* USD Change in Non-farm Payrolls
* CAD Unemployment Rate
* GBP Gross Domestic Product Estimate
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If the Canadian Government is onside everything must be just fine with the loonie? Prime Minister Harper said the BoC’s monetary policy is appropriate and that the currency’s depreciation doesn’t reflect weakness in the economy. Governor Poloz and his monetary policy has happened to trigger a -6% decline in the country’s currency against its largest trading partner the US, where 70% of their total exports travel. No one seems worried about the recent movement, apart from the CAD bulls, as long as the currency trades at “appropriate levels given the various economic realities.” Last October the BoC governor happened to remove their hawkish bias, a bias put in place by the previous Governor Carney 12-months prior. This has removed a market license to support the currency that has since printed a four-year low outright earlier this week.
For many analysts, shortening the CAD outright is considered one of the go-to trades for 2014. However, few expected the currency to have weakened so rapidly so early in the New Year. Next week the BoC again could be putting the loonie directly in the speculators crosshairs. The street is anticipating the BoC to signal the need for lower interest rates by using rhetoric rather than action, an indirect approach to boost economic growth by devaluing the currency.
The loonie is not winning the ugly race amongst the commonwealth currency, for now that honor happens to remain with the Aussie dollar (0.9642). The USD/CAD uptrend seems to be taking a small breather because of the good-sized option interest on the topside (1.1000). However, technically through these levels expect further stop losses to be triggered, opening up the market route to test 1.1300 levels sooner rather than later. The market remains a better buyer of USD on any dips, which currently remain few and far between.
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- Foreign Investors Losing Interest in U.S. Assets
- US and European Post Recession Recovery Comparison
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- US Weekly Unemployment Claims Drop
- US Builder Sentiment Falls in January
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- IMF Expects Global Growth to Pick Up in 2014
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- U.S. Banks Remain Wary of New Loans
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- Deutsche Bank Cuts Oil Price Forecast to $97.50
- US Import Prices Unchanged in December
- Fed’s Lockhart says he Supports More Tapering
- Fed Moving on New Commodity Trade Rules
- U.S. Government with $53.2 Billion Surplus in December
- US Bank Results To Reignite Bonus Controversy
* CNY GDP
* NZD Consumer Prices Index
* EUR German ZEW Survey
* JPY Bank of Japan Monetary Policy Statement
* AUD Consumer Prices Index
* CAD Bank of Canada Rate Decision
* CAD Consumer Price Index
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The U.S. dollar nursed broad losses early on Monday after surprisingly soft employment data raised doubts about how quickly the Federal Reserve can scale back stimulus.
Disappointing British and Canadian data on Friday also undermined both sterling and the loonie, leaving the euro, yen and Antipodean currencies among the best performers.
The dollar index last traded at 80.630, having fallen 0.4 percent on Friday after data showed U.S. employers hired the fewest workers in nearly three years in December.
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Oil rose on Friday as new reports of production problems at a major U.K. oilfield and weaker-than-expected U.S. jobs data raised expectations that the U.S. Federal Reserve may slow the winding down of its commodity-friendly stimulus program.
Brent oil rose on reports of fresh production problems at the North Sea’s Buzzard oilfield, two days after an outage at the largest UK oilfield. Buzzard is the largest of the fields that contribute to the Forties crude blend, the most important of the North Sea crudes underpinning the Brent crude benchmark.
In the U.S. market, the unexpectedly weak jobs report triggered a short-term rally from the previous session’s 8-month low. U.S. oil futures rose to a session high after the market flirted with technically oversold territory for the first time in two months, but later pared gains.
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Canada’s dollar dropped versus most major peers as the nation’s consumer-price index fell below the central bank’s target, bolstering prospects policy makers will keep interest rates low.
The currency, called the loonie, touched the weakest in four months against the U.S. dollar before paring the loss as another report showed Canadian retail sales climbed more than three times what was forecast. Core inflation excluding more volatile categories came in at expectations. A technical indicator signaled the loonie may have fallen too much, too fast. It was still set for the biggest weekly loss against the greenback in a month.
“Core is basically in line with expectations and that’s enough to make them think the best direction for rates is to keep them on hold,” said David Tulk chief macros strategist at Toronto-Dominion Bank’s TD Securities unit by phone from Toronto. “Core is the operational guide for the bank and I think that’s close enough to their forecast that doesn’t provide them with enough of a reason to jump off at this point.”
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The euro rose to the highest in more than four years versus the yen after a German report showed Europe’s economic recovery may be gaining momentum, easing speculation the central bank will cut interest rates further.
Australia’s dollar fell against all of its 16 most-traded peers amid speculation the nation’s central bank will take steps to curb the currency’s strength. The yen reached a four-month low versus the dollar after Bank of Japan Governor Haruhiko Kuroda said he will do his utmost to restrict an increase in long-term yields. Futures traders increased their bets that the yen will decline against the dollar to the most in six years.
“It looks like we’re going to see the euro zone return to genuine growth in 2014,” said Andrew Wilkinson, chief economic strategist at Miller Tabak & Co. in New York. “There seems to be a finite magnitude in terms of how far the ECB can go to cut rates. That’s no longer driving investors away from the euro.”
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Canada’s dollar strengthened for the first time in three days amid a rally in commodities including crude oil, the nation’s biggest export.
The currency, called the loonie, gained versus most major peers after a Canadian business barometer rose more than forecast. Crude oil, the nation’s biggest export, climbed from a five-month low. The loonie’s gains were tempered as investors awaited October employment reports for the U.S. and Canada this week that are forecast to show declines.
“Crude is up close to 2 percent, that’s probably filtering through and providing a bit of a bid for the loonie,” David Doyle, a strategist at Macquarie Capital Markets, said by phone from Toronto. “Commodities are up generally and the loonie, which is seen as a commodity type of currency, probably has some benefit from that.”
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Australia’s dollar tumbled from near a one-week high after a report today showed the nation’s full-time employment dropped by the most in more than a year.
The Aussie weakened versus all of its 16 major counterparts and the yield on government debt due in a decade fell, set to halt an a five-day advance that sent it yesterday to the highest level in three weeks following the Reserve Bank’s Nov. 5 decision to hold borrowing costs. New Zealand’s currency slid for the first time in five days as Asian stocks declined.
Today’s jobs data had “weak details,” said Sue Trinh, a senior currency strategist at Royal Bank of Canada in Hong Kong. The currency’s outlook “will be a little bit more nuanced. The data that we had of late have been mixed enough to keep the RBA pretty much on the sidelines at least into the second quarter of next year.” RBC predicts an interest-rate cut in the three months through June 2014, Trinh said.
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