Canadian data ahead to provide clarity on when BoC will cut rates again – TDS

FXStreet (Barcelona) – Mazen Issa, Senior FX Strategist at TD Securities, previews the key Canadian data releases ahead, and further notes that even if the BoC fails to cut rates this month, it will maintain its dovish bias.

Key Quotes

“The risk of another rate cut by the Bank of Canada at the July 15th meeting has increased substantially, highlighting the importance of the data flow over the next week ahead of the communication blackout on Wednesday.”

“A key indicator today is the summer edition of the Business Outlook Survey (BOS). We look for the balance of opinion of future sales to rebound to +12 in Q2 from +4 but the devil will be in the details; anecdotal evidence that points to waning constructive optimism on a US recovery (especially from export-industries) and continued slippage in capex intentions will be key and would risk CAD falling further.”

“Domestic data risks also includes the May merchandise trade balance (Tuesday) and the June employment report (Friday). Note that relative data surprises have become an increasingly important influence for spot as the market gauges the probabilities for further BoC easing. We think that the trade deficit will widen from -$3.0B in April (relative to the market’s expectation of a narrowing) but it will be key to monitor the performance of non-commodity exports. The latter is a fundamental lynchpin to the Bank’s upbeat tone in recent months. However, non-commodity exports have been far from impressive so lack of a rebound here will also undermine the CAD.”

“While monthly swings in employment should not influence policy decisions (especially compared to the aforementioned indicators), disappointment here (TD: -15k, market: -10k) paired with the proximity to the July 15th meeting perhaps improve the chance of a cut. But, if the BOS and the trade balance are not as bad as feared, then that should trump implications of a negative employment report.”

“Even if the Bank holds the line at 0.75% next week, we suspect that the accompanying narrative will sound far more dovish than in recent months. The risk here is that the Bank retains its rosy outlook, but we suspect that the market may downplay this as the Bank’s optimism looks far removed from the recent data flow.”

Mazen Issa, Senior FX Strategist at TD Securities, previews the key Canadian data releases ahead, and further notes that even if the BoC fails to cut rates this month, it will maintain its dovish bias.

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