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Canadian Q2 GDP Contracts More than Forecast; US Private Payrolls Outperform

Published August 31, 2016
  • USDCAD is pushing into the 1.3100's this morning on the back of weaker crude prices and a below forecast Canadian GDP report for Q2, both of which contrast against a better than expected private payrolls report out of the US
  • Crude prices are off another 1% and trading at $45.85 a barrel for WTI as yesterday's API Inventory data confirmed suspicions that the recent rising rig count across US formations would lead to increased production
  • This morning, at 1030am ET, the EIA will release its official inventory report which is foretasting a 0.921M build in crude stocks and a 1.157M drop in gasoline inventories
  • A stronger US dollar has also hurt crude prices recently as it makes contracts denominated in USD more expensive for foreign buyers
  • The Canadian dollar has certainly felt the pinch from lower oil prices as it has given up 2.8% to the greenback since Aug. 22nd
  • This trend looks like it may still have legs to run as Canada reported weaker than expected GDP growth during Q2 of -1.6% versus a -1.5% forecast
  • Encouragingly, growth in Q1 was revised upwards from 2.4% to 2.5% and June's monthly GDP came in at +0.6% compared with +0.4% forecast
  • Data out of the US this morning was once again moving in the opposite direction to those in Canada, as ADP reported that their reading of private payrolls in August increased at a faster pace than expected  
  • 177k jobs were added last month compared with 175k forecasted, and July's figures were also revised upwards to 194k from 179k previously
  • The ADP figures and Friday's official non-farm payrolls data from the bureau of labour statistics are loosely correlated, however, this is a positive sign for USD bulls and rate hawks
  • I would suspect that Friday's numbers have to be in the area of 225K+ compared with a forecast of 180k+ for the Fed to hike in September
  • Friday remains the key in the rate hike debate so those with upcoming exposures should plan ahead as best as they can
  • USDCAD is still comfortably in the mid 1.3100's now and the next major target is the 200 DMA, c. 1.3286 to the topside with support at 1.3030 and 1.2965

Charts: (1) USDCAD above 1.3100 targets the 200 DMA at 1.3286. Two-year yield spread (GREEN) supports USDCAD. (2) Economic Calendar is once again dominated by the US this week with Friday's Payroll Report the main event.