CAD: Setting up for manufacturing sales - TDS

Research Team at TDS, suggests that the Canada’s manufacturing sector is set to maintain its sluggish pace in August with a forecasted gain of 0.2% m/m for headline sales.

Key Quotes

“The moderate improvement in seen in August exports is unlikely to carry over to the manufacturing sector, as the strongest individual component in the trade report was raw mineral exports. However, other indicators are more promising: motor vehicle sales should be a source of strength as seasonally adjusted auto production rose by 6% m/m while higher volumes of railroad cargo indicate an improvement in the resource sector. Fortunately, volumes should be slightly stronger than the nominal print due to the decline in producer prices over the month.

We view the risks surrounding this forecast as tilted to the downside due to a steep decline in manufacturing hours worked, during the month of August. However, this was largely a correction from an outsized gain the prior month (which never filtered through to manufacturing sales), so we are cautious to read too deeply into it.

Foreign Exchange

Given the proximity to the BoC meeting this week, we look for manufacturing sales to fall under investors radar screens. Indeed, USDCAD continues to focus on the cross currents of rate spreads, oil and risk sentiment. We expect further consolidation in the greenback so USDCAD could grind a bit lower despite potential for another sluggish manufacturing print. Our high frequency fair value models suggests a move back to 1.3050 so we like buying dips below 1.31 ahead of the BoC meeting.”