CAD Lower as Growth Expectations Drop
Alfonso Esparza | Oct 17, 2017 09:08
The Canadian dollar depreciated on Monday after the release of the Bank of Canada (BoC) survey of managers. The Business Outlook Survey fell from 2.81 last quarter to 0.86. The anticipated slowdown in economic growth after it expanded at an accelerated growth was reflected in the reduced forecasts. The end result still points to a healthy economy, but not at the same pace that put the central bank into hiking rates twice.
The NAFTA negations have been anything but smooth sailing. The U.S. trade delegation has been pushing for more America-first clauses that have not been taken well by the Canada and Mexico delegations. The U.S. tabled an idea a higher regional content for autos to be part of the free tariff access. Current North American content requirement is 62.5 percent, and the U.S. wants to increase that to 85 percent (with 50 percent of that being U.S. content).
Negotiations have been tense after the U.S. also proposed a five-year term for the updated NAFTA, to which both Canada and Mexico had already objected. U.S. and Mexican governments wanted to wrap up trade negotiations before the end of the year, but the current pace of progress make this very unlikely.
The USD/CAD rose 0.47 percent since the Asian open. The currency pair is trading at 1.2528 as the US Empire State Manufacturing index posted a higher than expected figure. The survey of NY manufacturers was 30.2 on a 20.3 forecast. The combination of a softer BoC Business Outlook Survey in Canada and a stronger manufacturing indicator in the U.S. further tipped the scales in favour of the U.S. dollar.
NAFTA uncertainty has put the Bank of Canada on alert as the loonie could lose up to 10 percent of its value if the Trump administration ends the agreement with no renegotiation. The central bank will meet next week, with 20 percent probability of a rate hike, but since the September rate hike and with a softer pace of growth, a third rate hike in 2017 is still a long shot. Inflation and retail sales data later in the week will be more telling on what the BoC could do before the end of the year.
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West Texas Intermediate prices have been volatile due to geopolitical events but seem to be attracted to the 51.80 level. The disruption of oil production from Kirkuk in Northen Iraq after the army seized the territory from Kurdish fighters drove prices to the $52.30. The situation is still ongoing, but for now prices remain stable below $52.
The comments from U.S. President Donald Trump threatening to end the Iran nuclear deal had a positive effect on prices as lower output from oil pushed prices higher. The U.S. Congress has a 60-day period to decide if it reinstates the economic sanction to Iran.
Market events to watch this week:
Tuesday, Oct. 17
Tentative GBP BOE Gov Carney Speaks
4:30 a.m. GBP CPI y/y
Wednesday, Oct. 18
4:30 a.m. GBP Average Earnings Index 3m/y
8:30 a.m. USD Building Permits
10:30 a.m. USD Crude Oil Inventories
8:30 p.m. AUD Employment Change
10 p.m. CNY GDP q/y
10: p.m. CNY Industrial Production y/y
Thursday, Oct. 19
4:30 a.m. GBP Retail Sales m/m
8:30 a.m. USD Unemployment Claims
Friday, Oct. 20
8:30 a.m. CAD CPI m/m
8:30 a.m. CAD Core Retail Sales m/m
7:15 p.m. USD Fed Chair Yellen Speaks
*All times EDT
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