USD/CAD Canadian Manufacturing Activity Declines for Third Consecutive Month

The Canadian dollar started the week on the back foot. It currently trades near 1.31 after disappointing manufacturing data. Last week the USD/CAD depreciated 0.231 percent after the eyes of the market came away disappointed by another uneventful Federal Open Market Committee (FOMC) that failed to deliver the much-awaited interest rate hike. A new line in the statement injected hope about the monetary decision to tighten arriving in December.

Canadian PMI Lower for Third Consecutive Month

The manufacturing data out of Canada disappointed this morning. The RBC manufacturing purchasing managers index (PMI) came it at at 48 marking a new low and below the 50 reading that would mean expansion. The contraction seen in Canadian factories is a by product of a strong loonie fuelled by a high oil price two years ago. Canadian manufactured goods were not as attractive and major employers started shutting down factories. The current levels at which crude is trading have brought the energy industry crashing down and have left the Canadian economy reeling as it seeks a way to offset those losses. A recovery in manufacturing is not going to happen overnight, no matter the low price of the currency.

Australia and Canada Central Banks on Hold Awaiting Fed

The Reserve Bank of Australia will release its interest rate statement later today and is expected to hold rates, but use a dovish tone regarding the current price of the Australian dollar. Verbal intervention has been an often used part of the monetary policy tool kit, specially by central banks like the RBA and the Bank of Canada (BOC) that are dependant on the decisions of other central banks linked to their trade flows and have limited room to cut rates to give their economies a trading advantage via a lower currency. The RBA and the BOC have a limit to what monetary policy actions they can use, as even if they use a rate cut to signal weaker currencies, if the Federal Reserve does not hike rates and therefore boost the dollar, the AUD and the CAD could potentially climb higher as we have seen happen in the recent past.

The Bank of Canada has cut two times so far this year. Both were pro active cuts that temporarily boosted the Canadian economy that has seen gains in the service sector. Manufacturing and the energy sector continue to drag. Gross domestic Product (GDP) numbers published on Friday, October 30 were inline with expectations at 0.1 percent. The last two months the Canadian GDP figures had impressed by beating expectations after the economy fell into a technical recession. The Canadian GDP numbers are published on a monthly basis which tend to mitigate the big swings seen in the majority of countries that report them quarterly.

The fate of the Canadian dollar heading into the first week of November will depend on Canadian and U.S. economic indicators. The highlight of the week will be the U.S. non farm payroll (NFP) report that will be published on Friday, November 6. At the same time the Canadian jobs report will be released. The trend for both reports has been diverging with the U.S. data losing traction, while Canadian jobs continue to beat expectations. The size of the economy and the significance of the NFP will give the American data bigger significance. That being said the fact the there is Canadian data to compare will give the loonie some arguments. There is a similar head to head release of data on Wednesday, November 4 with both Trade balances.

CAD events to watch this week:

Wednesday, November 4
8:30am CAD Trade Balance
Thursday, November 5
10:00am CAD Ivey PMI
Friday, November 6
8:30am CAD Employment Change
8:30am CAD Unemployment Rate
8:30am CAD Building Permits m/m

*All times EST