The Canadian dollar started the week depreciating against the United States dollar. The greenback advanced 0.541 percent in the last 24 hours. The loonie is getting limited support from the price of energy that although gaining almost 0.90 percent is still trading near $45 as ample supply is driving crude downwards.
Canadian Housing starts beat expectations with a 218,000 print when the forecast called for 192,000 in June. Booming condo construction in Ontario and British Columbia boosted the housing starts. The rise in construction was a surprise given the government stance on rising household debt and macro economic headwinds. There are still signs that the housing sector is strong in the Toronto and Vancouver but weaker in cities hit by the decline of energy prices such as Edmonton in Alberta.
The news out of the United Kingdom about a single candidate remaining for the Prime Minister job gave stock markets around the globe a shot in the arm as one of the biggest uncertainties post Brexit is about to be sorted. Theresa May was a Remain supporter and now lone standing candidate to replace David Cameron who will step down in October. The irony of a Remain supporter in charge of orchestrating the break away of Britain from the E.U. will still cause market concerns, but for now political stability has returned boosting the pound against major pairs.The USD/CAD gained 0.541 percent in the last 24 hours. The pair is trading at 1.3110. The loonie has not recovered from the impact of the massive U.S. jobs report on Friday. The U.S. non farm payrolls (NFP) report added 287,000 in June with a 4.9 percent unemployment rate. The Canadian Labour Force survey also released last Friday shows a drop in unemployment to 6.8 percent even as the economy lost 700 jobs this month. The lower unemployment rate is explained by a drop in the participation rate to a 16 year low of 65.5 percent. The divergent path of employment in both sides of the border plus the softness of energy prices will keep the CAD under pressure.
The big market event for the loonie will come on Wednesday, July 13 at 10:00 am EDT when the Bank of Canada (BoC) releases its rate statement. No changes are expected for the Canadian benchmark interest rate, but the tone of the quarterly monetary policy report and later in the press conference with Governor Stephen Poloz will the main focus. The market is expecting a more dovish tone from the BoC which could be preparing investors for an eventual rate cut in the fall if there are not obvious positive impact from the fiscal stimulus package announced in March from the government.
The BoC was proactive in 2015 with two rate cuts ahead of the tumble in oil prices. This year the central bank has been more patient amid rising macro headwinds. There are few factors that Canada is able to control such as the price of energy and market uncertainty triggered by political events in Europe that have lead to a depreciation of the CAD. The biggest factor supporting the CAD has been the apparent stability of U.S. growth.
CAD events to watch this week:
Wednesday, July 13
10:00am CAD BOC Monetary Policy Report
10:00am CAD BOC Rate Statement
10:00am CAD Overnight Rate
11:15am CAD BOC Press Conference
Thursday, July 14
8:30am CAD NHPI m/m
Friday, July 15
8:30am CAD Manufacturing Sales m/m
*All times EDT
For a complete list of scheduled events in the forex market visit the MarketPulse Economic Calendar
About Alfonso Esparza
Senior Currency Strategist, OANDA, Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, he 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. Follow on Twitterand on his Google+ profile.