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Canadian Current Account Deficit Balloons to C$ -19b; Fischer Echoes Calls for Rate Hikes

Published August 30, 2016
  • USDCAD has pushed higher once again this morning, into the mid 1.30's, as the market continues to digest the possibility of rate hikes this autumn from the Federal Reserve
  • Comments made this morning by Vice Chair and perma-hawk, Stanley Fisher, reiterated that the US economy is near full employment and that growth has not been impinged by a strong USD to date, which is to say that the prospect of a stronger USD is of little concern to him at present
  • That said, the Fed remains data dependent and thus this Friday's August jobs report is absolutely essential
  • Forecasts are for another solid month of gains with 180k jobs created and the unemployment rate dropping to 4.8% from 4.9% in July
  • Jobless Claims in August averaged 263k per week to the third week of August with all reports coming in below economist forecasts and trending lower each week, a sign that the labour market remains robust
  • The USD index is broadly higher as yield spreads across the G10 move in favour of the US, underpinning the move in the greenback
  • The spread between US and Canadian two-year bond yields continues to widen in favour of USD as well, and is acting as support for USDCAD
  • Canada reported that its Q2 current account deficit ballooned to a near record C$ -19.86 billion from C$ -16.77 billion in Q1 precipitated by a large C$ -6.63 billion decline in exports  
  • The US reports Consumer Confidence at 10am ET and Canada reports Q2 GDP on Wednesday morning at 630am ET
  • Risks remain skewed to further USDCAD upside with the 200 day moving average at 1.3286, the next major target

Charts: (1) USDCAD above 1.3030 targets the 200 DMA at 1.3286. Two-year yield spread (white) supports USDCAD.  (2) Economic Calendar is once again dominated by the US this week with Friday's Payroll report the main event.