Loonie Spikes to 2-Year High

Daily Analysis - 07/09/2017

Bank of Canada Announces Surprise Rate Hike

canadian-dollar-strengthens


The Canadian Dollar rallied to its highest point in over two years against the US Dollar after the Bank of Canada unexpectedly lifted its benchmark interest rate for the second time in under two months. USDCAD tumbled to as low as 1.2140 in Wednesday trade before rebounding back above 1.2200.

Bank of Canada Give Rates Dovish Lift


In a surprise move, the Canadian Central Bank raised the overnight lending rate by 25 basis-points to 1.00% and kept the door open for more rate hikes this year.  Even as the institution vowed to focus on how higher borrowing costs will impact Canada’s indebted households, an unexpectedly strong economy was behind the latest monetary tightening effort.

Canada reported a 4.50% annualized pace of growth during the second quarter, data from Statistics Canada showed last week, marking the strongest first half growth since 2002. USDCAD slipped close to -2.00% during Wednesday’s session after the announcement was made.  An appreciation in the local currency typically accompanies a rate hike as investors seek better returns on their cash deposits. In the meantime, the pair was last seen around the 1.2230-mark after finding new support.

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US Trade Deficit Widens


Commerce Department figures unveiled late on Wednesday showed the US trade deficit broadening less than forecast in July amid rising energy and aircraft exports that helped offset declines in shipments of household goods and vehicles. The deficit grew marginally to $43.70 billion in July compared to the $43.50 billion posted back in June while beating the consensus estimate of a $44.60 billion gap for the period. Imports fell -0.20% to $238.10 billion, while exports dipped a slightly larger -0.30% to $194.40 billion in July.

The trade deficit through the first seven months of the year is running almost 10.00% higher than the year-ago period as robust consumer spending and higher business investment draws in more imports. A larger US trade gap points to slower economic growth due to Americans buying more overseas goods. Dow futures are down in Thursday morning trade to last trend near the 21775-zone.

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German Factory Orders Stumble


On the back of weak domestic demand, German industrial orders fell more than expected in July according to data from the Federal Statistical Office. Wednesday’s figures showed that factory orders dropped -0.70% in July on a seasonally adjusted basis following a 0.90% gain in June. Economists surveyed by Reuters were anticipating 0.30% growth for the period. Chiefly behind the drop was the -1.60% contraction in domestic orders during July while foreign orders remained unchanged.

Despite the weak data point, the German economy has notched a strong performance ahead of federal elections scheduled for September 24th, which will see Chancellor Angela Merkel square off against Martin Schulz for a fourth term. DAX 30 futures closed Wednesday at 12282 amid a short-term trend higher in the index.  A break above key resistance at 12320 could see fresh buyers enter the market.

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Australian Trade Surplus Shrinks


Australia's trade surplus narrowed in July, slipping to the smallest amount in three months following a decline in energy shipments and lower gold exports. On a seasonally adjusted, the trade balance fell to a surplus of AUD 460.00 million, almost half of the AUD 888.00 million surplus recorded back in June. Exports were down -2.00%, primarily due to sharp dips in the value of LNG and gold exports.

Imports fell by -1.00% after modest declines in consumption and intermediate goods. Separate data from the Australian Bureau of Statistics’ showed retail sales remained flat in July, trailing expectations of a 0.30% increase.  It was the weakest sales figure since March when Cyclone Debbie wreaked havoc in northern New South Wales and southeast Queensland. EURAUD is gaining ground early Thursday ahead of the upcoming ECB decision to hover around 1.4940.

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