This past week BoC Governor Poloz delivered a speech to the C.D. Howe Institute. In his speech he discussed how growth in Canada’s service sector is leading to high paying jobs and helping Canada’s economy to return to its full output. Governor Poloz also appeared on Bloomberg TV in an interview, were he mentioned that he sees a heightened uncertainty in Canada ever since Trump won the election, and that the central bank is waiting to see actual policies before making a decision.
We also saw some data released this past week. Current Account did worse than expected with the forecast being @ -16.8B and the actual printing @ -18.3B. Canadian GDP (MoM) released @ 0.1% and doing better than expected @ 0.3%. RMPI doing better @ 3.3% from the previous -0.1%. Canadian employment data was positive as we saw 10.7k jobs added in Canada.
OPEC also finally reached an agreement which strengthened CAD supported by oil prices going higher.
BIAS ON CAD?
a) bearish on CAD
Reasons for bias?
1) higher oil prices might soon lose momentum and wear off
2) US to hike rates this December and possibly next year
3) Trump will redefine trade deals which is likely to affect Canada
Governor Poloz delivered a speech that highlighted some key points about Canadian economy. He said the service sector is helping in growing the Canadian economy and leading to high quality jobs. The Governor explained the importance of this sector as the Canadian economy recovers from a loss of export capacity and a drop in resource prices.
In a separate event in an interview, he spoke about how it was too soon for the central bank to factor in policies linked to Donald trump. Just last month the Governor considered cutting rates of 0.5% but he decided otherwise because he is waiting for more evidence that the economy will gain momentum.
Investors expect Canada to cut rates because of the Trump administration. BoC’s monetary policy will also take into consideration the bond yield factor ahead of its next rate decision. The Governor also said the central bank’s October projection seems to be on track, averaging 2%.
OPEC reached an agreement after all the uncertainty leading up to the meeting. The market may now look to sustainable higher oil prices as the OPEC agreement strengthened CAD. Considering the upcoming events from December to next year, CAD strength might not last. We might see BoC cut rates next year as of high prices begin to fade. U.S hike rate is also expected to be released this month, which will more likely see the dollar keep stronger.
US DOLLAR vs CANADIAN DOLLAR
Canadian employment data was good as it added 10.7k jobs. Canada’s unemployment rate fell to 6.8%. Non Farm Payrolls data was better than expected printing 178k from 175k that was forecasted. OPEC agreement was reached on Wednesday. Oil prices added to U.S inflation expectations but traders are cautious because OPEC members were joined by non-OPEC nation Russia.