The Canadian dollar broke away from the heavy correlation it had exhibited earlier in the year with falling oil prices. Oil was on a downward trend as the Organization of the Petroleum Exporting Countries (OPEC) and the non-OPEC chance of a production agreement remains elusive as neither group has issued a formal need for cooperation.
Canadian indicators started the week on a positive note with the release of the RBC manufacturing purchasing managers index (PMI) posting a 49.3. The survey of purchasing managers is near expansion again after 4 disappointing reports. An hour earlier the U.S. personal income report showed how Americans are not spending to their potential, choosing to save instead. This is a departure from the behaviour needed to boost consumer demand to support the U.S. economy.
The negative releases were just getting started for the U.S. economy. The final PMI was slightly below expectations at 52.4 but still in expansionary territory. The ISM manufacturing PMI was lower than forecasted at 48.2. The same reading than last month when an improvement had been anticipated. Construction spending in the U.S. came in under expectations at 0.1 percent and the ISM manufacturing prices continued to contract with a 33.5 in March and well below the 50 point mark of expansion.
The news about China’s official PMI falling for a six straight month drove down optimism about an increase in global demand. The anxiety surrounding a potential hard landing in China drove investors to safe havens and force them to take profit on USD positions.
The surprise action of the Bank of Japan (BOJ) on Friday has put more pressure on central banks as more easing is expected from the European Central Bank (ECB) and it could delay the interests hike plans for the Bank of England (BoE) and the U.S. Federal Reserve.
The U.S. Federal Reserve Vice Chair Stanley Fisher made comments today to reiterate that the central bank will raise rates based on the performance of the economy and that the door is still open for the rate hike in March. The market has heavily discounted the possibility given the global macro conditions have shifted since December. At the time of the historic rate hike, as many as four hikes were forecasted by Fed members. It now looks like a more prudent expectation is two rate hikes later in the year, but before the U.S. presidential elections.
This week in forex will be defined by two central banks: The RBA on Monday night and the BOE on Thursday. U.S. employment data will be key to the price of the U.S. dollar. Canadian employment data will have a chance to boost the price of a the CAD, but it will have to fight for attention against the NFP data on Friday.
USD/CAD events to watch this week:
Wednesday, February 3
8:15am USD ADP Non-Farm Employment Change
10:00am USD ISM Non-Manufacturing PMI
10:30am USD Crude Oil Inventories
Thursday, February 4
8:30am USD Unemployment Claims
Friday, February 5
8:30am CAD Employment Change
8:30am CAD Trade Balance
8:30am CAD Unemployment RateUSD
8:30am USD Non-Farm Employment Change
8:30am USD Trade Balance
8:30am USD Unemployment Rate
*All times EST
For a complete list of scheduled events in the forex market visit the MarketPulse Economic Calendar