The Ivey PMI is anticipated to inch lower to 51.0 from 51.5 in August as foreign and domestic demands falter, which would fuel bearish sentiment for the Canadian dollar.
Trading the News: Canadian Ivey Purchasing Managers Index
What’s Expected
Time of release: 10/06/2008 14:00 GMT, 10:00 EST
Primary Pair Impact : USDCAD
Expected: 51.0
Previous: 51.5
How To Trade This Event Risk
The Ivey PMI is anticipated to inch lower to 51.0 from 51.5 in August as foreign and domestic demands falter. The economic downturn in the U.S. has clearly taken a toll on Canada as the neighbor down south consumers nearly 80% of Canadian exports, and conditions may only get worse as the effects of the U.S financial crisis spills over into the global economy. Just two weeks ago we saw that retail spending fell more than expected as the headline reading slipped to 0.1% from a revised reading of 0.6% in June. In addition, retail sales excluding the volatile automotive component plunged to 0.4% from 1.5%, signaling that higher living costs and mounting growth concerns have dampened private-sector consumption. Meanwhile, the Bank of Canada continued to hold their benchmark interest steady at 3.00% for the third consecutive meeting, noting that the current rate is ‘appropriately accommodative’ even as economic activity falters. The commentary suggests that the central bank is not looking to lower rates at anytime in the near future, and may hold a neutral policy stance for the remainder of the year as inflation remains well above their desired target. However, the policymakers did go onto say that they expect inflation to fall within their 2 percent target next year as oil prices continue to pull back from its record highs. In fact, this week we saw the raw materials price index plunge 7.7% after rising 1.6% in July, and was followed by a 0.2% decline in the industrial product price. The data suggests that upside prices pressures may taper at a faster pace than the central bank has initially anticipated, which would allow the central bank to lower borrowing costs ahead of schedule in order to support economic growth.
Despite mounting growth concerns, the consumer price index inched higher to 3.5% from 3.4% in July, while core inflation increased to 1.7% from 1.5%, indicating that upside price pressures will be an ongoing concern for the BoC. Furthermore, the monthly GDP reading increased to 0.7% from 0.1% in June, signaling that growth prospects have improved from the first half of the year. Therefore, an improved reading in the Ivey index would reinforce an enhanced outlook for Canada, and may spur bullish sentiment for the loonie. Accordingly, we will look for a red, five-minute candle to confirm a short trade on two lots of USDCAD, and we will place our initial stop at the nearby swing low (or reasonable distance). Our target for the first lot will be equal to this initial risk, and our second target will be based on discretion. Once the first trade reaches its target, we will move the stop on the second lot in order to preserve our profits.
On the other hand, fading demands from the global economy could lower business spending further, and may spark bearish sentiment for the Canadian dollar. As a result, we will look for a green, five-minute candle following the release to confirm a long trade, and we will follow the same setup as the short mention above, just in reverse.