USD/CAD Loonie Faces Big Week as Recession Looms

  • Oil recovers, but not enough to stop Loonie drop
  • China jitters remains, but Fed reaction three weeks away
  • Canada data in lockstep with US

The CAD had a rough week as the Chinese stock market rout grabbed headlines and spread panic around the world. Canada was under attack from two fronts. Lower demand for commodities was expected after China was not able to contain a strong sell off in their local stock market. Safe haven flows pulled out of the USD and into more stable asset classes. U.S. data pointed to a strong economy that appreciated the American currency.

Canadian Elections Focuses on Recession

The long journey to elections started in Canada with one big salient point. Is Canada in a recession? The technical answer is no, or rather not yet. A technical recession is when the gross domestic product has negative growth for two consecutive quarters. Canada reports monthly GDP figures which make the speculation more straightforward. With only one month to be reported there is a high probability Canada will be in a recession. This is the argument from the two political parties hoping to wrest control of the nation from the Conservatives. The monthly GDP figures posted in June and July were both negative (–0.1% and –0.2%) There is still an outside chance that the actions of the Bank of Canada were enough to avoid a recession.

Proactive BOC Enough to Avoid Recession?

The Bank of Canada led by Governor Stephen Poloz has been proactive in trying to avoid a recession by cutting interest twice in 2015. While not possessing the rock start qualities of his predecessor, he has also been left to deal with a struggling Canadian economy when one of its biggest exports, oil, is experiencing a supply glut as producers are pumping record levels of crude.

Next week the Canadian economy will post several arguments for a recovery or a recession. As opposed to this week where there was little Canadian data on deck, the week of August 31 to September 4 brings major indicators out in the open. Of note for traders are the data indicators that share a release with its American counterpart such as employment and trade balance figures.

Canadian events to watch this week:

Tuesday, Sep 1
8:30am CAD GDP m/m
10:00am USD ISM Manufacturing PMI
9:30pm AUD GDP q/q
Wednesday, Sep 2
8:15am USD ADP Non-Farm Employment Change
Thursday, Sep 3
8:30am CAD Trade Balance
8:30am USD Trade Balance
8:30am USD Unemployment Claims
10:00am USD ISM Non-Manufacturing PMI
Friday, Sep 4
8:10am USD FOMC Member Lacker Speaks
8:30am CAD Employment Change
8:30am USD Non-Farm Employment Change
10:00am CAD Ivey PMI

*All times EDT
For a complete list of scheduled events in the forex market visit the [MarketPulse Economic Calendar](

Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza