The Canadian dollar depreciated on Thursday as investors fled to safe havens following concerns about global growth. The USD gained versus the CAD as support from oil prices was not forthcoming after Iraqi oil exports rose putting a big question mark ahead of the Doha output freeze summit.
A patient Fed, the fear of Brexit and ineffective interventions from the Bank of Japan and the European Central Bank (ECB) hurt emerging and commodity markets triggering sell offs against the USD. The greenback has been on the back foot ever since the Federal Open Market Committee (FOMC) March meeting ended with a more dovish tone. Chair Yellen has made it clear on two occasions that the central bank is in no rush to hike rates after it lowered its forecast from 4 to 2 rate changes in 2016.
The Canadian dollar was able to escape from the effects of negative data yesterday, but it looks like without the cover of higher risk appetite the loonie was exposed. Canadian data was negative with the Ivey Purchasing Managers Index (PMI) coming in below forecasts at 50.1 barely above the expansion level. The loonie reacted after the PMI, but got a chance to recover after the USD weakness. This week’s release of the Canadian Trade at $1.9 billion deficit was almost three times from last month’s figures. Imports declined 2.6 percent, but in a negative note Exports fell 5.4 percent after a record high $43.7 billion in February.
The USD/CAD gained 0.387 percent in the last 24 hours. The pair is trading at 1.3149 with session lows recorded early in the session at 1.3019. Oil prices had a tough first half of the trading session with WTI dropping naer the $36 price line, but rebounded later to end at $36.80. The boost from oil was not enough to offset the losses in the CAD that is flying with no economic releases today.
The Bank of Canada (BoC) has done a good job of managing expectations this year. Deciding against a rate cut in January as the bottom fell out of the oil market and waiting instead for the Federal budget to be released is turning out to be a good idea. The decision bought the Canadian central bank some time and preserves the limited runway to cut rates, and even further discuss “unconventional” measures further.
It is too early to know how deep the impact of the fiscal stimulus added to the Federal budget will benefit the economy. The liberal goverment made sure to announce a document that hit all the right notes politically, but on aggregate might not be enough to boost the Canadian economy out of the rout the fall in crude prices forced it in.
Canadian employment will be the highlight for tomorrow. The Canadian economy is forecasted to add 10,000 new jobs with the unemployment rate expected to remain at 7.3 percent. Jobs data has been volatile and could surprise the market either way. The CAD is on thin ice after the flight to safety and could fall if lower than expected numbers are released tomorrow. The upside to the CAD will be limited with a positive number, given macroeconomic conditions.
USD/CAD events to watch this week:
Friday, April 8
8:30am CAD Employment Change
8:30am CAD Unemployment Rate