USD/CAD Canadian Dollar Lower After US GDP Improvement and Tax Reform Talk

The Canadian dollar depreciated on Wednesday after the private payroll processor ADP posted a 237,000 monthly job gains in the US. The positive news for the US dollar would keep coming in with an improvement on the quarterly GDP estimate now at 3.0 percent after the first forecast of 2.6 percent delivered last month. President Donald Trump made a big push for tax reform earlier today in Missouri but was short on details while putting the onus on making the reform a reality on congress. Tax reform was one of the early supporters of the dollar rally after the November US presidential election results, but it now faces a different political landscape than when Trump first announced it.

A rise in imports to Canada drop the current account deficit higher in the second quarter but it did so at a lower pace than forecasted and the first quarter data was also revised to show a lower deficit than originally reported. Tomorrow’s release of monthly GDP will be the highlight on the CAD economic calendar with Canadian production expected to have slowed down to 0.1 percent.

US refineries continue to shut operations in the aftermath of Hurricane Harvey. The storm has taken offline almost 24 percent of refiners with a week or more until they can restart work. West Texas Intermediate is down as there is a supply glut of crude while gasoline prices have risen. Hurricane Harvey ended up closing more refineries than Katrina, which mostly affected platforms reducing the supply of crude. With a world awash in crude it is easier to replace than the capacity for refining those into distillates which explains the sudden rise of gasoline prices. Even the bigger than expected drawdown in last week’s US crude inventory data did little to push prices higher.

The USD/CAD gained 0.794 percent on Wednesday. The currency pair is trading at 1.2621 near daily highs after a strong ADP private payrolls report has raised expectations of a strong U.S. non farm payrolls (NFP) on Friday. The two employment reports don’t have a strong correlation as the NFP report is a more complete look at the jobs component. With the market’s confidence in a third rate hike by the U.S. Federal Reserve this year slowing evaporating a strong showing in wage growth could boost the USD.

The main indicator release this week for CAD traders will be the monthly GDP data due on Thursday, August 31 at 8:30 am EDT. The Canadian GDP is expected to have slowed down after a strong first half of the year.

NAFTA negotiations will start on Friday with sources pointing out that Mexico has already started to work out a plan B if US President Donald Trump does indeed withdraw from the trade agreement. Canada has been active pushing trade talks with the United Kingdom, Europe and China but they are far from being active in time to be a reliable backup option to a world without NAFTA.

The price of West Texas Intermediate fell 0.845 percent in the last 24 hours. WTI is trading at 45.86 after Hurricane Harvey continues to reduce refinery capacity in Texas. Close to a quarter of refineries are now shut down due to flooding with a week or more before they can reopen.

US weekly inventories did little to stop the drop in crude prices. The Energy Information Administration (EIA) published today a 5.4 million drawdown that eclipsed the 1.9 million barrels that were forecasted. The report data comes just days before Hurricane Harvey hit, as it still shows 96.6 percent refining utilization, which has been the stat that has come down more after the storm.

Market events to watch this week:

Thursday, August 31
8:30 am CAD GDP m/m
8:30 am USD Unemployment Claims
9:45 pm CNY Caixin Manufacturing PMI
Friday, September 1
4:30 am GBP Manufacturing PMI
8:30 am USD Average Hourly Earnings m/m
8:30 am USD Non-Farm Employment Change
10:00 am USD ISM Manufacturing PMI

*All times EDT