Morning Commentary: Canada’s Economy – In the Shadows

Foreign Exchange - Morning Commentary

Canada’s Economy – In the Shadows

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Alan Rose
Alan Rose
Foreign Exchange Senior Trader
The Canadian economy is largely overshadowed by the U.S. economy and there is a tendency in the markets to lob the Canadian dollar in with its fellow commodity and energy-linked currencies (NOK, MXN, AUD etc.) as commodity and energy prices are important parts of the Canadian economy. But while commodity prices play an important role for this country, there is another story concerning the Canadian economy that is quite positive and optimistic, given the most recent history of weakening global economic data, making Canada look like a shining star.
Much of the markets attention is concentrated and focused on the U.S. Federal Reserve as the Fed has raised interest rates on a regular and methodical basis since the end of 2015 (9 times). The Bank of Canada has been a half-step behind the Fed and has raised interest rates five times since the summer of 2017 as the Canadian economy continues to recover and receive a positive ripple effect from a strengthening U.S. economy. Australian interest rates have been unchanged (all-time lows) since August of 2016 as Australia is seen as more dependent on Chinese demand for its growth.
The Canadian dollar has been the top performing major currency in 2019. Today’s Canadian jobs report showed another strong month of job creation. Employment increased by 66,800 (think a U.S. jobs report near 600,000) which was much higher than expectations of a gain of only 5,000. Full-time and part-time employment both surged by nearly equal amounts. Labor force participation rose from 65.4% to 65.6%; the only negative was the UR rate which rose from 5.6% to 5.8%, but that was due to more people looking for work. Canada is the only G7 country whose interest rates are higher today; the Canadian dollar is also stronger.
  • The Central Bank of Russia (CBR) left interest rates unchanged at 7.75% as expected. January CPI was reported earlier this week at 5.0% y/y versus December’s print of 4.3% y/y. the official inflation target is 4.0% and the 5.0% reading is the highest reading since January 2017. The CBR has raised interest rates two times since March 2018 each by 25 bps.
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