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BoC Governor Poloz Says Data Makes Rate Hike Miles Away

BoC Governor Poloz Says Data Makes Rate Hike Miles Away

Tyler Yell, CMT, Currency Strategist
BoC Governor Poloz Says Data Makes Rate Hike Miles AwayBoC Governor Poloz Says Data Makes Rate Hike Miles Away

Fundamental Forecast for CAD: Bearish

  • Canada’s Dollar Remains Bidless Despite Other Commodity Reliant Currencies Catching a Bid on Suspect USD Strength
  • Canada Sept. Retail Sales Fell 0.5%, Est. 0.1% Causes BoC Governor Poloz To Say Data Makes Rate Hike “Miles Away.”
  • For up-to-date and real-time analysis on the CAD, Oil and market reactions to economic factors currently ‘in the air,’ DailyFX on Demand can help.

In an ideal economy, which doesn’t exist anywhere, weakness in one sector would be followed or balanced by strength in another sector. For the Canadian economy, the hope would be that weakness in the energy market would be offset by the strength of Canadian households to spur demand thanks in part to the money saved by lower energy prices. However, that’s not happening, and it’s causing frustration at the Bank of Canada. It turns out that the oil-dependent Canadian economy isn’t having the resilience that the Bank of Canada would like to see, and that was shown via Retail sales this morning Dollar has continued to see weakness as the price of Oil sitting near $40 has put the country in a tough fiscal position. Specifically, the finance department showed Canada is on pace to end the year in the red to the tune of C$3 Billion as the economy has failed to revive itself due to the Oil Slump.

Earlier this week, we saw a dismal print in Canada Manufacturing Sales on Monday at -1.5% vs. 0.2%. This argues that the weakness in the economy is yet to be fully realized and that the shift to Non-Resource industries will be rough (a la Australia). Other domestic data last week was the Bank Canada Consumer Price Index Core (YoY) that slightly beat expectations at 2.1% vs. 2.0% exp. Next week, we will turn focus again to the direction of WTI Crude Oil to see if a breakout could potentially spur buying of the Canadian dollar as a value play. Outside of the reliance of Oil, the more important news event on Friday will be Industrial Produce Price MoM that expected to improve to -0.1% vs. prior readings of -0.3%. However, if Oil further pushes toward the August 24th low and Industrial Produce Price misses expectations, we could see CAD make another run at YTD lows.

On the charts this week, the Canadian Dollar failed to find the buyers that found other commodity currencies like the Australian and New Zealand Dollar. Even the Oil reliant Norwegian Krone ended the week up 0.5% to the USD. If Oil can catch a bid next week, we could see CAD play a game of catch-up in which the Canadian Dollar strengthens fast against the USD/CAD in a game of Fear of Missing Out (FOMO). After failing multiple attempts to break and hold above 1.3355 resistance, USD/CAD could test 1.3220 support. US Dollar trading will likely be thin next week due to the American holiday week so Oil will likely be the key driving of CAD until the economic calendar’s come back to life.

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