USDCAD Starts Week Higher Ahead of NA Economic Releases

The loonie started the week on the back foot. The USD/CAD was trading in a 1.2480-1.2527 in overnight trade and continued to rise on the North American session. The forecasts for the Canadian economy have been softer and this week’s data releases could validate the pessimistic assessment. The monthly gross domestic product (GDP) will be released ahead of the Bank of Canada rate statement on Tuesday.

Central Bank Governor Stephen Poloz is not expected to announce a new rate cut on Wednesday, then again that was also the case in January when he surprised the market by dropping rates. The intervention this week could be verbal only as the BOC is likely to wait for economic conditions to deteriorate further to resort to a second rate cut. There is a dovish tone expected when Poloz faces the press which could further weaken the CAD.

This week will throw a slew of economic data on both sides of the Canada-U.S. border. USD/CAD will be driven by the economic divergence as they both close the week with employment data. The U.S. non-farm payroll has been the positive outlier in mixed economic releases for the American economy. Canadian employment has been soft as it has been plagued by errors and the worrisome rise of part-time workers versus full time employment.

Important Canadian Economic Events This Week

CAD Gross Domestic Product GDP

After the biggest factory drop in six years shrank Canadian GDP at the end of last month CAD traders will be watching this month’s GDP figures to get some insights ahead of the Bank of Canada Rate announcement. The fall in energy prices has hit the Canadian economy hard as the economy has not pivoted fast enough to benefit from a lower currency. The BoC could cut rates further in order to boost competitiveness and stimulate the Canadian economy.

CAD BOC Rate Statement

Bank of Canada Governor Stephen Poloz decreased the possibilities of follow up January’s surprise rate cut with another one on Wednesday. The move was explained as pre-emptive given the macro headwinds that the Canadian economy is facing. Lower energy prices have hit oil producing province Alberta, after it was the main engine of growth in the post credit crisis years. There are low expectations of a rate cut this week, but the market is pricing more cuts coming this year. The January rate cut has given the central bank time to sit back and watch the effects of the cut and measure their next intervention. A rate cut is coming, but it is not expected to happen in this meeting. The CAD is expected to gain if a no rate cut decision is published.

CAD Ivey PMI

Canadian manufacturing can continue to weaken the CAD versus the USD, specially if if combines with a strong U.S. manufacturing index. Last Ivey PMI reading was the first under 50, which put it in the realm of contraction. The index dropped to 45.4 last month. Economic conditions have not changed much for the benefit of Canadian manufacturing, but it is expected that the Bank of Canada actions can give exporters a pricing edge with a lower currency. The PMI is expected to enjoy a small recovery to 46 but still below the reading needed for expansion.