The Canadian dollar depreciated versus its U.S. counterpart on Tuesday. The probability of a U.S. Federal Reserve interest rate hike in September has kept the USD rally going as it heads into the first of the employment releases this week. The ADP payrolls report will be published on Wednesday, August 31, at 8:15 am EDT. Another 170,000 plus new jobs are expected which would keep the U.S. non farm payrolls (NFP) due on Friday on the 170,000 to 200,000 job gain range.
The Canadian current account showed a growing deficit, but slightly below the forecast at 19.9 billion. Canadian exports are struggling despite the low currency. Canadian Prime Minister is in China trying to boost the North American nation’s international profile and seeking investment.
The USD riding the wave of hawkish Fed rhetoric from the Jackson Hole summit and a surprise CB Consumer Confidence index that surged to 101.4 beating the forecast and bringing U.S. consumer confidence to its highest level since September 2015. The true test of this leading indicator will come with the release of American retail sales on Thursday, September 15.
American employment data week will start with the release of the ADP payrolls. The jobs component has been the strongest supporter of a recovering U.S. economy, but the Fed has proven that full employment is not enough to trigger a rate hike so more data is needed. Inflation and consumer spending need to deliver gains if a September rate hike is on the table despite all the optimistic talk from the Fed. The fact that the September rate hike is still live has given a boost to the USD, but it could quickly turn as more economic data could make the Fed sit back and show more patience.
The USD/CAD lost 0.575 percent in the last 24 hours. The pair is trading at 1.3096 after the price of oil tumbled and Canadian data disappointed with the second highest deficit on record and the Industrial Product Price Index (IPPI) rose 0.2 percent as rises in non-ferrous metals were offset by losses in the energy sector. The Raw Materials Price Index (RMPI) decreased 2.7 percent tied directly with the fall in oil product prices.
Exports even with a soft loonie have not been able to offset imports. The Bank of Canada (BoC) is hoping the weak currency helps boost exports in the long term but as it stands Canada has the second biggest current account deficit in the G7, after the United Kingdom.
The CAD’s correlation to oil prices have taken USD/CAD above the 1.31 price level as oil’s tumble on over supply fears have once again risen following comments from Iran and record production from the OPEC.
West Texas oil lost 1.11 percent in the last 24 hours. The price of crude is trading at $45.95 after a surge in the USD combined with higher expected stockpiles on Wednesday as the Energy Information Administration (EIA) releases U.S. inventories. Iran also reported that it is on track to reach peak production as it catches up to the rest of the Organization of the Petroleum Exporting Countries (OPEC) after the Western sanctions were lifted.
Iraqi Prime Minister appeared to do some damage control as the oil price rapidly fell when he said that the crude producing nation supports a freeze of output. The statement from the PM of the second largest producer at the OPEC did little to stem the drop of crude prices as the strength of the USD and the buildup reported by the API inventories ahead of the official report on Wednesday did little to support energy prices.
Market events to watch this week:
Wednesday, August 31
8:15am USD ADP Non-Farm Employment Change
8:30am CAD GDP m/m
10:30am USD Crude Oil Inventories
9:00pm CNY Manufacturing PMI
9:30pm AUD Private Capital Expenditure q/q
9:30pm AUD Retail Sales m/m
9:45pm CNY Caixin Manufacturing PMI
Thursday, September 1
4:30am GBP Manufacturing PMI
8:30am USD Unemployment Claims
10:00am USD ISM Manufacturing PMI
Friday, September 2
4:30am GBP Construction PMI
8:30am CAD Trade Balance
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