After a strong bull market that lasted from November 2016 (following Trump's victory) to January 2017, CAD/JPY reversed for many months until June. Since then, the exchange rate has strengthened thanks to underlying strength in the Canadian dollar. The loonie has been supported in the latter half of 2017 by strong economic growth and interest rate hikes.
The Canadian dollar is currently selling off against all major currencies except the Japanese yen. Yesterday, the loonie ended the day sharply lower against the US dollar. For the third session in a row, trading volumes in Canadian dollar futures accelerated relative to the previous session. The combination of recent weakness and rising volumes suggests that traders are selling the loonie with conviction. Today's USD/CAD trading range is 1.2770 - 1.3120.
Following a significant slowdown in year-over-year inflation, the Canadian dollar sold off sharply earlier today. Looking at the figures, headline inflation in September slowed to 2.2%, versus 2.8% in August. Consensus estimates had also called for significantly higher inflation in September. Ahead of next week's Bank of Canada interest rate decision, the significant slowdown in inflation (from its recent peak at 3% two months ago) is a serious concern for Canadian dollar traders. Beyond the recent slowdown, inflation is likely to keep slowing thanks to steepening base effects. In other words, rising inflation at this point last year makes a continued acceleration in year-over-year inflation mathematically more challenging. All else held equal, falling inflation lowers rate hike expectations, in turn weighing on the Canadian dollar.
While September retail sales figures (also announced earlier today) beat the previous monthly figures, note that August retail sales numbers were revised lower. As consumption is a significant proportion of Canada's overall economy, retail sales have a significant impact on the outlook for growth. As retail sales growth has been decelerating in rate-of-change terms this year, it follows that the outlook for Canadian growth is weakening accordingly. Our outlook on the Canadian dollar remains bearish.
The USD/CAD exchange rate is currently above 1.3110. The euro is up against the Canadian dollar, with EUR/CAD currently above 1.510. The pound is up against the Canadian dollar, with GBP/CAD trading above 1.710. CAD/JPY is flat, and currently trading above 85.70.
|October 15||New Motor Vehicle Sales AUG||185.2K||179.6K|
|October 15||BoC Business Outlook Survey|
|October 16||Foreign Securities Purchases AUG||C$2.82B||C$15.29B|
|October 16||Foreign Securities Purchases by Canadians AUG||C$-0.19B||C$13.06B|
|October 17||Manufacturing Sales MoM AUG||-0.4%||0.9%|
|October 18||ADP Employment Change SEP||28.8K||42.7K|
|October 19||Core Inflation Rate YoY SEP||1.5%||1.7%|
|October 19||Inflation Rate YoY SEP||2.2%||2.8%|
|October 19||Retail Sales YoY AUG||3.6%||3.5%|
The Japanese yen is currently weakening against all major currencies. Yesterday, the yen moved up sharply against the US dollar. Notably, trading volumes in yen futures accelerated for the third session in a row, rising above 30-day averages. The combination of continued strength in the yen and accelerating volumes suggest that traders bought the yen with conviction. Today's USD/JPY trading range is 111.50 - 114.50.
As riskier assets such as equities and commodities rebound today, the yen appears to be weakening accordingly. Following a significant move higher in Chinese equity markets this morning, most US equity indices and commodities are strengthening. The S&P 500 is currently up by 0.5% while WTI (crude oil) prices are up by more than 1%. As as a safe haven currency, the yen tends to weaken in response to improving risk appetite.
Turning to domestic economic data, year-over-year September inflation figures decelerated relative to the previous month. While domestic inflation was rising in late 2017, cost pressures appear to be running out of steam this year. Between a mixed outlook for growth and inflation that remains directionless, the Bank of Japan is less likely to signal tighter monetary policy in the near future. All else held equal, the continuation of the status quo is neutral for the yen.
Lastly, Japanese Finance Minister Aso said that the US did not consider the country to be a currency manipulator. According to a Reuters story, Aso also stated that Japan-US trade talks are likely to begin in mid-January. While Trump's attempts to re-negotiate international trade arrangements have weighed on currencies such as the Mexican peso and the Canadian dollar in recent history, the Japanese yen has been unscathed so far. Our outlook on the yen remains neutral.
USD/JPY is currently trading above 112.40. EUR/JPY is up slightly, and trading above 129.10. GBP/JPY is up slightly, and trading above 146.50.
|October 15||Reuters Tankan Index OCT||28||26|
|October 15||Capacity Utilization MoM AUG||2.2%||-0.6%|
|October 15||Industrial Production YoY Final AUG||0.2%||2.2%|
|October 18||Balance of Trade SEP||¥140B||¥-438B|
|October 18||Exports YoY SEP||-1.2%||6.6%|
|October 18||Foreign Bond Investment 13/OCT||¥1016.9B||¥-200.3B|
|October 18||Stock Investment by Foreigners 13/OCT||¥52.6B||¥1577.4B|
|October 18||Imports YoY SEP||7%||15.3%|
|October 19||Core Inflation Rate YoY SEP||1%||0.9%|
|October 19||Inflation Rate Ex-Food and Energy YoY SEP||0.4%||0.4%|
|October 19||Inflation Rate YoY SEP||1.2%||1.3%|
|October 19||BoJ Gov Kuroda Speech|
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