Statistics Canada released third-quarter gross domestic product this morning. The forecast was for GDP to rise 2.0%, a much weaker result than the 2.9% gain that was achieved in Q2. There are a host of reasons for the weaker result, including a slowdown in consumer spending and housing investment. However, a 2.0% growth rate is still above the Bank of Canada’s prediction. September GDP is expected to rise 0.1%, unchanged from August. The market expects the data to be weak which suggests an upside surprise would have a more significant impact on the Canadian dollar than a weak number.
The Canadian dollar is also underperforming because of falling oil prices. West Texas Intermediate (WTI) is trading in a volatile manner and is at a 12-month low. Prices are undermined by increased concerns of a global economic slowdown triggered by the U.S./China trade war. Adding to the selling pressure is the fact that despite rising domestic crude inventories, the U.S. is pumping oil at record levels. At the same time, there are reports that Saudi Arabia, Russia and the Organization of the Petroleum Exporting Countries are considering a fresh round of production cuts to shore up prices.
Canadian dollar selling pressures may abate after this weekend’s G-20 Summit meeting in Argentina. Once again, U.S. President Trump is front and centre as he conducts bi-lateral meetings with various world leaders, notably Chinese President Xi Jinping and Russian President Vladimir Putin. The media is reporting that China and the U.S. were close to an agreement on the framework for further trade talks. If so, it would mean that the Americans would delay any further tariff increases or new tariffs. In return, China would agree to discussions on substantial changes to their current economic policies. It is a tall order, but some believe Trump is motivated to get a deal to help shore up equity markets.
Today is also month end which usually means some currency market disruption due to portfolio re-balancing flows. It wasn’t a stellar month for U.S. equities which suggests re-balancing demand will be minimal.
FX trading activity may be a tad on the quiet side after the 11:00 a.m. EST. The re-balancing flows (if any) will be over, and traders will be looking ahead to next week. The Bank of Canada monetary policy statement and Monetary Policy Report (MPR) are released on Wednesday, December 5. Economists do not expect a rate increase due to the possible economic disruption from the plunge in oil prices. They have been known to cut rates because of falling crude, although that is unlikely outcome at Wednesday’s meeting. U.S. and Canadian employment reports are due on Friday, December 7.
Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians
