Research Team at TDS, suggests that a solid streak for Canadian manufacturing activity will likely come to an end, with shipments forecast to have edged higher by 0.2% m/m in the month of January.
Key Quotes
“Under the surface of this benign headline expectation are several important developments. On the positive side of the ledger, the auto sector is expected to perform well for the fourth consecutive month in light of observed gains in exports. Despite a stronger month for the USD, shipments of aerospace products are likely to return a portion of their recent strength while continued weakness in the energy sector (reflected in the export data as well) will keep sales of petroleum and coal quite subdued.
Manufacturing volumes will likely start 2016 on the back foot as an increase in the price of motor vehicles more than offsets weaker energy prices throughout the month (overall, industrial prices rose by 0.5% m/m in January). As a result, manufacturing volumes should underperform nominal sales. While still early days, this print will put a damper on industry-level GDP for the month of January.
USDCAD: The tide may be turning for USDCAD. After ignoring the rates market (which augurs for more topside), the recent softening in crude oil prices has helped USDCAD put in some work in forming a base. Funds have already just broke above the 200-dma and looks attractive for additional topside from a technical point of view. A disappointment in manufacturing sales we think will help to further this narrative given that the CAD has been on a tear since the January 20th BoC meeting, making it one of the best performing G10 currencies (next to the JPY) versus the USD on a YTD basis. USDCAD performance will likely be limited ahead of the FOMC meeting but overall, we still like this pair higher.”
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