Week in FX Americas – BoC’s Poloz to Stay the Course

  • Central banks remain “front and centre”
  • Loonie penalized by crude prices
  • 25% fall in oil prices adds +0.3% to U.S GDP
  • Demons of deflation persist

Friday’s surprising +2.8% annualized Canadian gross domestic product (GDP) gain in the third quarter is unlikely to persuade Governor Stephen Poloz at the Bank of Canada (BoC) to change course anytime soon. Canada’s is a commodity-rich and sensitive economy. With oil representing about +20% of Canadian exports, the recent slide in energy prices is weighing on Canada’s terms of trade. The big driver for growth in the third quarter was net exports, which added +0.9% to Canada’s overall growth.

Over the past few months, plummeting energy prices are having a “net” negative impact on the economy north of the U.S. border and its currency, the “loonie.” The CAD ($1.1410) is trading lower, despite Friday’s better-than-expected GDP report in this holiday shortened trading week. Immediately after the release, the CAD did find some outright traction. Nevertheless, the weight of crude prices is having a much greater negative impact, supported obviously by OPEC’s (Organization of the Petroleum Exporting Countries) decision to not cut its production target. On Thursday, OPEC oil ministers maintained the existing daily production of +30M bpd quota.

Loonie to End Its Bull Cycle

Technical analysts believe that a USD/CAD daily close north of Thursday evening’s $1.1324 print sends a strong signal to the market that the loonie’s recent bullish run has come to an end. The trend reversal will now target this year’s USD/CAD high ($1.1465). Despite the energy sector’s growing importance to the U.S. economy, many believe that the recent drop in crude prices will be a net gain for American economic growth. With crude prices falling -25% in recent months, it equates to approximately -$75 billion in tax cuts for the U.S. consumer, or it adds +0.3% to U.S. GDP in the coming year. Regardless, the market will be required to follow U.S. yields to gauge the big dollar’s overall strength. The demons of deflation in Europe and Japan will not be powering global yields higher anytime soon.

What to Expect Next Week

Be ready to hit the ground running next week. The bulk of the market’s attention will again be on central bank decisions and reactions. It all starts with the Swiss National Bank on Sunday. No matter which way the gold referendum vote goes, investors will want to cash in on some of their longstanding positions. Meanwhile, the Reserve Bank of Australia’s rate decision will kickstart Australasia’s week. The Bank of England, European Central Bank, and BoC will all make public statements in middle of the week before giving way to the granddaddy of economic indicators: the U.S. nonfarm payrolls report on Friday.


MarketPulse Economic Calendar


* CHF Swiss Gold Referendum
* USD ISM Manufacturing
* AUD Reserve Bank of Australia Rate Decision
* AUD Gross Domestic Product
* EUR Euro-Zone Gross Domestic Product
* CAD Bank of Canada Rate Decision
* GBP Bank of England Rate Decision
* EUR European Central Bank Rate Decision
* GBP BoE/GfK Inflation Next 12 Months
* CAD Unemployment Rate
* USD Change in Non-farm Payrolls


This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Dean Popplewell

Dean Popplewell

Vice-President of Market Analysis at MarketPulse
Dean Popplewell has nearly two decades of experience trading currencies and fixed income instruments. He has a deep understanding of market fundamentals and the impact of global events on capital markets. He is respected among professional traders for his skilled analysis and career history as global head of trading for firms such as Scotia Capital and BMO Nesbitt Burns. Since joining OANDA in 2006, Dean has played an instrumental role in driving awareness of the forex market as an emerging asset class for retail investors, as well as providing expert counsel to a number of internal teams on how to best serve clients and industry stakeholders.
Dean Popplewell