The Canadian dollar is trading lower versus the U.S. dollar after the end of the Fourth of July holiday. Energy prices have fallen after the concern of investors about the multiple economic slowdown signals around the globe. Crude prices are down over 4 percent today after Brexit fears and anxiety surrounding a possible Italian referendum.
Canadian Manufacturing Purchasing Managers Index (PMI) released on Monday showed a slowdown in manufacturing in the second quarter of 2016. The Manufacturing PMI was 51.8 versus last month’s 52.1. The reading is above 50 which means expansion, but the slowdown comes ahead of the Brexit results which could mean Canada was slowing down with bigger challenges yet to make an impact.
The Bank of Canada (BoC) released the Summer Business Outlook survey and that document also revealed that although exporters are optimistic, the drag on commodity released industries is too large to offset.
The biggest risks to the Canadian economy remain: Brexit, Fed Funds Rate and the price of oil. Brexit will continue to put downward pressure on markets as the process to exit the E.U. is not a simple one even after the democratic vote of the referendum. The U.S. Federal Reserve is not likely to raise rates after the lack of stability in global markets following the shocking British vote, but at least one more rate hike could be possible in 2016, that is if the Fed is not forced into action with a rate cut before that if the U.S. economy deteriorates. Oil prices are caught between an obvious supply glut and speculative flows all of this happening while investors are dealing with the fallout of the Brexit vote.
The USD/CAD has gained 0.774 percent in the last 24 hours. The pair is trading at 1.2947 after the end of the U.S. fourth of July holiday. The lack of liquidity during the holiday session was positive for the CAD, but once U.S. traders returned to their desks and combined with the fall of oil prices the CAD had no support and started climbing back to the 1.30 price level. The USD/CAD hit 1.3118 in the week following the U.K. E.U. referendum vote, but managed to return to 1.2862 after the Brexit process was not as simple as invoking article 50 of the Lisbon treaty (which still hasn’t been done). Risk appetite returned ahead of the long weekend in the U.S. but now news of the fragility of the Italian banking system and the threat of a referendum aimed to fix its political stand still threatens to add uncertainty to an already volatile market.
West Texas lost 4.71 percent in the last 24 hours. WTI is trading at $46.50 after fears of a global economic slowdown post Brexit and ample evidence of a crude supply glut. The start of 2016 came with a crash in oil prices as Chinese stocks suffered a sell off and the rapid decline of oil in 2015 was accelerated. The informal communication between Saudi Arabia and Russia through the media brought hope an oil output freeze was possible, and even though the Doha summit did not bring an agreement at least the communication channels were open which resulted in a rebound for oil prices.
Commodities in general have been hit by the outcome of the British vote on the E.U. referendum. Lower demand and a flight to safety has pushed prices lower.
This week will be tough on CAD traders with U.S. employment releases dominating the market’s focus. The Fourth of July holiday has pushed back the usual release schedule with the ADP to be released on Thursday the same day as unemployment claims and a day ahead of the biggest market indicator the U.S. non farm payrolls (NFP). First up though is the publication of the Federal Open Market Committee (FOMC) minutes from the June meeting. Released three weeks after the meeting a lot has happened since that meeting. Brexit was a known risk as opposed to a reality and that changes how much the notes from Fed members thoughts on the path of monetary policy in the U.S. will be taken into account by the market.
Market events to watch this week:
Wednesday, July 6
8:30am CAD Trade Balance
10:00am USD ISM Non-Manufacturing PMI 2:00pm USD FOMC Meeting Minutes
Thursday, July 7
4:30am GBP Manufacturing Production m/m
8:15am USD ADP Non-Farm Employment Change
8:30am USD Unemployment Claims
11:00am USD Crude Oil Inventories
Friday, July 8
8:30am CAD Employment Change
8:30am CAD Unemployment Rate
8:30am USD Average Hourly Earnings m/m
8:30am USD Non-Farm Employment Change
8:30am USD Unemployment Rate
*All times EDT
For a complete list of scheduled events in the forex market visit the MarketPulse Economic Calendar