USD/CAD Fundamental Forecast – September 1, 2016

The Canadian Dollar fell to a three-week low against the U.S. Dollar on Wednesday after a Canadian government report showed a deep contraction in the economy for the second quarter and after the U.S. reported a bigger-than-expected crude oil build.

According to Statistics Canada, Canada’s economy shrank at an annualized 1.6 percent rate in the second quarter. A drop in exports and a disruption to oil production caused by wildfires in northern Alberta helped the economy post its worst showing in seven years.

Despite the poor showing in the second quarter, traders say that the Bank of Canada may refrain from cutting rates to stimulate the economy because strong GDP numbers in June suggest the economy may already be recovering from the devastation caused by the wildfires.

The Bank of Canada is scheduled to meet on September 7. The implied probability of either a central bank rate hike or a rate cut by the end of the year was nearly zero, overnight index swaps data showed. Before the GDP data was released, a 4 percent probability of a rate cut was implied.

The Canadian Dollar was also weakened by a decline in crude oil prices. Crude fell after a U.S. Energy Information Administration (EIA) report that showed crude inventories rose by 2.3 million barrels to a total of 525.9 million barrels in the week-ending August 26. Traders were looking for an increase of about 0.921 million barrels.

Also pressuring the Loonie was a report by payrolls processer ADP that showed U.S. private employers added 177,000 jobs in August. This comes ahead of Friday’s major U.S. Non-Farm Payrolls report that could determine whether the Fed raises rates in September or December.

Shortly after the release of the EIA oil report, the USD/CAD was up 0.0025, or 0.19% to 1.3122. The bearish data is too much for the Canadian Dollar to overcome so we expect to see the USD/CAD underpinned most of the session. Gains will be limited by general concerns over Friday’s jobs report.

FxEmpire provides in-depth analysis for each asset we review. Fundamental analysis is provided in three components. We provide a detailed monthly analysis and forecast at the beginning of each month. Then we provide more up to the data analysis and information in our weekly reports, which covers the current week and are published by Sunday before the new week begins. Daily we share any new events, forecasts or analysis that affect the current day. To achieve a full accurate understanding it is important that you study all of our data and analysis as a whole.

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Thursday, September 1, 2016

Government Bond Auctions

Date/Time Country Type

Aug 31 11:05 Norway Holds bond auction

Aug 31 11:30 Germany Eur 4bn Sep 2018 Schatz

Sep 01 10:30 Spain Holds bond auction

Sep 01 11:30 UK Jul 2022 Gilt

Sep 01 11:50 France Holds bond auction