The Bank of Canada (BoC) is expected to keep the benchmark interest rate unchanged at 0.50 percent on Wednesday, April 13 at 10:00 am EDT. The positive effect of a lower loonie has helped the service sector and is likely to warrant an upgrade to the central bank’s GDP forecasts. The BoC rhetoric will be reviewed to look for insights on when the economy will feel the impact of the federal budget announced last month. Optimistic U.S. growth rhetoric from the Fed and a rebound in oil prices has the loonie gaining which should please the Canadian central bank after the rapid decline in January. The employment data was a huge surprise as it blew past the forecast and has restored some confidence on the non-resource based part of the economy.
The Canadian economy added 40,600 new jobs in March crushing forecasts of 10,400 and driving the unemployment rate lower to 7.1 percent. The employment report published on April 8 showcased the recovery in the health care and social assistance industries. Manufacturing continues to shrink as well as industries directly linked to energy.
After a dismal start of the year for the Canadian economy, growth indicators are starting to turn around. Oil prices have been rising thanks to the stability brought by the upcoming the Doha Output Freeze summit. The weaker loonie gave non resource based sector a chance to shine specially with steady growth in the U.S. Markets forecasts call for the BoC to remain on the sidelines for the rest of the year if the macroeconomic fundamentals remain on the same track.
The USD/CAD depreciated 1.088 percent in the last 24 hours. The loonie has been flying high on the back of positive economic fundamentals and an appreciating crude price. Despite the U.S. Federal Reserve’s not being committed to a interest rate hike the American economy still has enough momentum to expand, which benefits Canada as a large trading partner. The loonie is gaining versus the greenback ahead of the BoC statement where most of the focus will be on the GDP forecasts as the Canadian benchmark, rate will remain unchanged.
Oil Price Spike Has Traders Talking End of Rout
The rapid recovery of oil prices this week has further cemented the opinion of energy analysts who are calling for the bottom of to have been hit and recovery in full swing ahead of the Doha Summit. The biggest factor in the possible success or failure of the oil output freeze agreement is Saudi Arabia. The middle eastern country remains the top Organization of the Petroleum Exporting Countries (OPEC) producer of oil. Seeking Russia’s help to enter into the agreement guarantees 77 percent of global oil output would cap their production at agreed levels.
Comments from Saudi deputy crown prince Mohammed bin Salman show a divided opinion inside Saudi Arabia as they insist OPEC member Iran must participate or else there won’t be an agreement. Oil producing nations have been hurting as their budgets were based on higher oil prices and all would welcome a boost, that is the main reason Russia is part of the agreement. Saudi Arabia’s downgrade is a clear sign that there is no oil producer exempt from low crude price pain, but some can withstand it better than others. There is a growing concern that the lack of trust amongst summit participants could result in the agreement being cancelled, or even if there is a successful agreement poor output rise enforcement as prices rise.
Canadian Oil Demand Grows in the U.S.
Even with the rise of domestic output in the U.S. Canadian crude has managed to hit a new export record. Four of every 10 barrels of imported oil in the U.S. hails from Canada marking a 10 percent year over year increase.
Volatility will continue to plague energy prices but it seems the adaptability of the Canadian economy and a proactive central bank and accommodative government will begin to bear fruit this year. The increase of growth forecasts tomorrow could be the first step that like oil the loonie had touched bottom.
Forex Market events to watch this week:
Tuesday, April 12
4:30am GBP CPI y/y
Tentative CNY Trade Balance
Wednesday, April 13
8:30am USD Core Retail Sales m/m
8:30am USD PPI m/m 0.3% -0.2%
8:30am USD Retail Sales m/m
10:00am CAD BOC Monetary Policy Report
10:00am CAD BOC Rate Statement
10:30am USD Crude Oil Inventories
11:15am CAD BOC Press Conference
9:30pm AUD Employment Change