The loonie is falling against the USD after the U.S. employment claims numbers and Canadian GDP figures were published. The Canadian economy showed no growth at 0.0 percent. The USD was in need of some good news and it got them as unemployment claims dropped below forecast to a weekly 262,000 new claims. The combination of economic releases resulted in the USD/CAD gaining some traction and breaking out of the 1.2000 to 1.2050 range and trading upwards of 1.2070.
The Canadian gross domestic product (GDP) was expected to contract at -0.1 percent given the oil price drop. The surprise to the upside was that retail and financial services were able to offset the lower crude prices, but not enough to get the market excited and the U.S. data provided stronger direction. Statistics Canada who provides the growth data issued a revision to the January data with a downward update that leaves the monthly growth at -0.2%. The Canadian economy is heading to a weak first quarter as already forecasted by the Bank of Canada at zero percent growth but no contraction . The silver lining is the fact that although not enough to push GDP into positive territory retail and financials were able to get to a flat reading. With the oil industry under pressure to keep cutting jobs as revenues were hit by the impact of lower prices other exports have yet to take a bold step forward into filling that gap.
The U.S. dollar is riding the wave started by the FOMC statement yesterday. While not a glowing endorsement of U.S. economic strength it did not signal a change of course for the Federal Reserve whose members still see a benchmark interest rate hike later this year. The question of the timing has been left dependant on economic data. This adds some volatility to data releases and explains some of the enthusiasm for the U.S. unemployment claims release that marked the best week in 15 years boosting the USD against all major currencies.
Tomorrow’s release of the Institute for Supply Management Manufacturing Purchasing Manager’s Index will give the American economy another opportunity to impress. Although the ISM Manufacturing PMI has failed to do that on a monthly basis since December of 2014. The Federal Reserve mentioned in their statement that a strong USD and transitory effects such as weather and the oil supply glut have had a negative impact on the economy. The fact that they are considered transitory factors while others such as employment are still considered resilient continues to build expectations of a rate hike later this year if the U.S. manages to awaken from its winter slumber.
There are no Canadian releases on Friday which means the loonie will have to be at the mercy of the ISM index and the reaction it triggers in the market. An above expectations of 52.1 will boost the USD as it breaks the underperforming trend started in 2015. Another failure to print above forecasts can make the USD/CAD stumble again below 1.20 if the manufacturing index continues to show the transitory effects are no so temporary as the Fed thinks.
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