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Canadian Leading Indicator Missed Forecasts in September

By Trang Nguyen
19 October 2011 14:27 GMT

THE TAKEAWAY: Canadian Leading Indicator Missed Economist’s Expectations> Declines in Stock Market Index and Manufacturing Sector Offset Rebound in Housing Sector > EURCAD Rebound to be Short-lived

Canada’s index of leading economic indicators fell 0.1 percent in September, marking the first month in negative territory since October 2010, Ottawa-based Statistics Canada reported today. The reading also missed the consensus forecast of 0.1 percent gain from Bloomberg survey. The index started its downward trend since February, then slightly expanded 0.1 percent in June and July and showed no improvement in August.

Canadian Leading Indicator: January 2010 to Present

101911_CAD_Leading_Indicator_body_Chart_2.png, Canadian Leading Indicator Missed Forecasts in September

Prepared by Trang Nguyen

The composite leading indicator comprised of ten components which significantly affect cyclical activity in the economy and together represent all major categories of Gross Domestic Product. The index’s poor performance in September was mainly attributable to sharp fall in the stock market and the manufacturing sector that widely offset the rebound in the housing sector. The benchmark S&P/TSX stock index dramatically plunged 3.5 percent for the fourth straight month in a row. New orders also retreated 0.7 percent after gaining 3.4 percent in two preceding months. Besides, average work week and the ratios of shipments to inventories continued to slide for the fourth consecutive months. Regardless, Canada’s overall leading indicator index was somewhat compensated by the advance of other six remainders. Housing sector witnessed the largest gains with a 1.2 percent increase that partly led to 0.4 percent growth in furniture sales and 0.8 percent advance in other durable sales. Likewise, business services and money supply both rose 0.5 percent in the month.

EUR/CAD 1-minute Chart: October 19, 2011

101911_CAD_Leading_Indicator_body_Picture_1.png, Canadian Leading Indicator Missed Forecasts in September

Charts created using Strategy Trader– Prepared by Trang Nguyen

As can be seen from the one-minute EURCAD chart above, currency traders are immediately bearish on the loonie following the release. The EUR/CAD pair gained about 15 pips from 1.3975 to 1.3990 in five minutes. The “bullish engulfing” pattern indicated that downside momentum was lost as a large candle was completely reversed on the following period. However, the upward momentum was just short-lived as the EUR/CAD pair fell 40 pips again from 1.3990 to 1.3950 after an hour. It’s evitable that investors have been closely watching to October 23 European Council meeting when the Greek debt crisis and Europe’s banking problems are expected to be solved. Since Canadian banks are less affected by Europe crisis, the loonie is still one of safe investment options amid intensified Eurozone’s sovereign debt situation.

--- Written by Trang Nguyen, DailyFX Research Team for DailyFX.com

To contact Trang, email tnguyen@dailyfx.com

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19 October 2011 14:27 GMT