Canada: Third consecutive month with trade surplus

Fundamental Analysis

CAD

"This is no longer a blip. We've got a good run going here.”

- Peter Hall, Export Development Canada

The Canadian trade balance remained in the positive territory for the third consecutive month in January, the longest streak since 2014, suggesting the economy regained momentum after the oil price collapse. Statistics Canada reported on Tuesday that the country’s trade surplus hit C$0.8 billion, while analysts expected January’s surplus to come in at C$0.2 billion. Meanwhile, December’s originally reported trade surplus of C$0.9 billion was revised down to C$0.4 billion. Data showed exports advanced 0.5% in January, while imports fell 0.3%. In volume terms, exports and imports rose 1.0% and 2.5%, respectively. After the release, the Canadian Dollar rose slightly against its US counterpart, trading at C$1.3406. Back in the Q4 of 2016, the Canadian economy expanded at a stronger than expected pace, driven by higher household spending and lower imports. However, despite the economy’s strong performance, the Bank of Canada left its key interest rate unchanged at its last policy meeting on March 1, pointing to significant uncertainties in the Canadian economy. Other data released on Tuesday showed the Ivey PMI dropped to 55.0 last month, after hitting 56.4 in the previous month. February’s decline was mainly driven by lower material prices. However, the Employment Index climbed to 54.5 from 53.5 in January.

NZD

"One poor result doesn't have a huge impact on the milk price [but] it will be difficult for prices to recover quickly while there is surplus product available“.

- Susan Kilsby, AgriHQ

Dairy product prices dropped markedly at the latest Global Dairy Trade auction, official figures revealed on Tuesday. The GDT Price Index fell 6.3% amid a decrease in skim-milk and whole-milk powder prices. Data showed the price of whole-milk powder, New Zealand’s key commodity export, fell 12.4% to $2,782 per tonne, while the price of skim-milk powder declined 15.5% to $2,118 per tonne. Back in February, Fonterra confirmed its forecast farm gate milk price for 2016-2017 of $6 a kilogram of milk solids amid a rebound in wholemilk powder pricing. Nevertheless, whole-milk powder prices dropped 22.5% since December. Usually at this time of the year offer volumes of dairy products start to decline; however, the recent pick-up in Fonterra’s milk intake is expected to increase the company’s supply of dairy products. Last week, Fonterra lifted 49% skim-milk powder volumes, as well as increased 6% the amount of whole-milk powder available. Analysts reported that the GDT prices at this morning’s auction had been even weaker than the marked initially expected. Anhydrous milk-fat prices fell 0.8%, while prices of cheddar, lactose and casein dropped 4.2%, 4.3% and 6.6%, respectively. However, the price of butter climbed 1.2%, whereas the butter-milk powder price rose 8.4%.

JPY

“The manufacturing sector is very worried about the development of U.S. economic policy. I think that is one of the reasons why they are very cautious about making greater business investments. This is the one area where we have a great deal of uncertainty in Japan”.

- Sayuri Shirai, Keio University

The Japanese economy expanded at a stronger than initially reported pace in the last quarter of 2016, due to upward revisions in business spending and business investment. The Cabinet Office reported on Wednesday the economy grew at an annualized pace of 1.2% in the Q4 of 2016, up from the preliminary reading of 1.0%. However, the figure missed analysts’ expectations, who anticipated growth at 1.6%. On a quarterly basis, Japan’s GDP climbed 0.3%, above the 0.2% preliminary reading, yet below consensus estimates of a 0.4% rise. Fresh data confirmed the presence of serious challenges, faced by Japan’s policymakers. Even though the Japanese economy reported growth for four consecutive quarters, marking the longest stretch in three years, business investment and consumption remained subdued. The Bank of Japan’s former board member Sayuri Shirai said that the corporate sector was “very cautious of making an investment” amid uncertainties in both global and local economy. Shirai served at the BoJ’s Policy Board from April 2011 to March 2016 and supported the QQE programme in 2013 and 2014. However, back in January 2016, she voted against negative interest rates. Data showed capital expenditure advanced 2.0% quarter-over-quarter in the Q4, surpassing expectations for a 1.7% climb and following the preliminary figure of 0.9%.

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