This is a pretty quiet week in terms of economic data for most economies, and Canada is no exception.
Most investors have their eyes on the most intense part of earnings season, where a little more than 70% of Canadian companies will have reported by the end of next week. The first reports have been somewhat disappointing. So, lacking other economic data, we could see some depression in the loonie should the current trend in earnings maintain.
Later today we have the release of wholesale trade data. This is the only major data we have until the middle of next week. If you are a technical trader, now’s your chance!
The CAD is likely to move only on external economic events until we get GDP on the last day of the month. In the meantime, we can have a look at what’s been going on and how the currency is shaping up in the medium term.
What We Are Looking For
Wholesale trade is a slightly disproportionately important figure for a country the size of Canada. That’s why it can move the market if it comes in well outside of expectations. And given the country’s trade dependence on its large neighbor to the south which is engaged in a series of trade disputes, data from trade is especially relevant.
The consensus among analysts is for wholesale trade to dip back into negative territory for the first time since February, with the average of expectations at -0.1%. This compares to 1.7% growth in the prior month and the best performance since the end of 2017.
Wholesale trade has a habit of bouncing up and down over the 0% mark. However, it’s been unusually positive and consistent for several months now.
The Particular Relevance
Wholesale trade is important because of what it doesn’t consider: Canada’s major commodity export, oil. Thus, it’s an important measure of trade without the distortion of crude prices. This is especially relevant considering how much Canada relies on exports to the US.
Specifically of interest is the progressive increase in vehicles and vehicle parts to the US over the last several months. This was a point of contention in recent trade discussions and a major component of Canada’s economy. For forex traders, it’s an important source of cash flow across the border northward. And this would help support the loonie.
And The Economy?
Canada’s economy has been bucking the world trend so far this year, showing definitive signs of growth. This is after having a bit of a shock with the price of oil dipping at the end of last year.
But, now OPEC and Russia have what’s seen as a more stable relationship in terms of maintaining output levels. Additionally, the rising tensions in the Middle East are also helping the price of crude. However, we should note that this data covers the period just before the incident involving mines and explosions on petroleum ships in the Strait of Hormuz.
Another one of Canada’s main exports is set to generate a record later in the week as well. The record will be set by the total grains transported by rail (to ports for export). This data is likely to be penciled in when factoring for the GDP figure coming out next week and could help supply some strength to the CAD as well.