CAD Analysis - 12th of January

Jarratt Davis

Special Consultant to the FPA
There is no opening trade call however we will be looking for pullbacks in commodity currencies against the yen and dollar for potential short trades. CAD remains a relatively neutral currency after the BOC's recent communications, however there remains a slight bearish tilt on the currency until we see a further improvement in data. Continued recent declines in the oil market have kept pressure on the CAD. Short term price movements will continue to largely be dictated by moves in West Texas Intermediate, with further substantial declines suggesting that the BOC may cut again during 2016. Check out my full CAD analysis below to keep up with the ever-changing market conditions.

CAD Summary

Interest Rate

Overnight Target Rate: 0.50%

Last Change: July 15, 2015 (0.75%)

Expected Future Change: On hold

Next decision: January 20


Inflation Target: 2% (1-3%)

Period: Year ending November 30

CPI: 1.4% Prior: 1.0%

Core CPI: 2.0% Prior: 2.1%

Next Release: January 22


Period: December

Employment Change: 22,800 Expected: 10000

Unemployment Rate: 7.1% Expected: 7.1%

Next Release: February 5


Period: October

GDP: 0.0% Expected: 0.20%

Next Release: January 29

CAD Analysis

The Bank of Canada left the Overnight Target Rate unchanged at 0.5% at the December 2 meeting which was widely expected. The policy statement was relatively unchanged from the prior release. Global economic growth is evolving essentially as the Bank had anticipated in its October Monetary Policy Report, however commodity prices have declined further and resource sector is still contending with these lower prices. In non-resource sectors, exports are picking up, particularly in exchange rate-sensitive categories. However, business investment continues to be weighed down by cuts in resource-sector spending.

The statement also noted that the labour market has been resilient at the national level, although with significant job losses in resource-producing regions. The Bank expects GDP growth to moderate in the fourth quarter of 2015 before moving to a rate above potential in 2016. Total CPI inflation remains near the bottom of the Bank's target range, owing to declines in consumer energy prices. Core inflation is close to 2 per cent as the effects of the lower dollar and the output gap continue to offset each other.

Following a sharp contraction in November, employment ended the year on a more positive note. A 22,800 rise was more than double the market consensus and, despite a tick higher in the participation rate to 65.9%, enough to keep the unemployment rate steady at 7.1%. With that said, it was not all good news for the labor market as the increase is due to part time positions, which gained 29,200 while the full time number was actually down 6,400.

GPD for the month of October, released December 23, showed zero growth for the month. Although uninspiring, this was an improvement from the 0.5% contraction seen in September.

Inflation for the 12 months ending November, released December 18, saw an increase in headline CPI to 1.4%, from 1.0%, but a downtick in Core CPI to 2.0%, from 2.1%. For the month, CPI fell -0.10%, while Core fell -0.30%. The move lower in core CPI is likely to become a concern for the Bank of Canada if prices continue to drift below 2%.

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