Canadian Dollar Receives Boost from Optimism Around China’s Economy

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The Chinese economy’s optimism had a positive impact on the Canadian dollar, giving the commodity currency a big lift. Being a significant global supplier of numerous commodities, the loonie gained traction despite declining crude oil prices. Since then, COVID cases in China have continued to constrain the upside for commodity demand, as we have seen for much of December and now in 2023, and markets stand strong in their cautious approach.

The USD is somewhat firmer against the CAD today, likely as a result of an FOMC minute that was more hawkish than expected. Market reactions were muted at the time of the release since the earlier ISM manufacturing announcement had caused the dollar to weaken.

US labor data will be the main topic later today (see the economic calendar below), starting with the ADP report (often a subpar indicator of non-farm payrolls (NFP)) and jobless claims. Overall, the labor market in the United States is still tight since there is a labor shortage. In advance of tomorrow’s NFPs, I do not anticipate a significant market response to this data.

Due to the data lag (November), the balance of trade results for November may also receive little attention from a Canadian perspective, but they are still a crucial indicator for the Canadian economy, which has been in a trade surplus since January 2022.

Canadian Housing Numbers Rebound

After dropping to 166,500 in April, Canadian house starts jumped up to 193,500 in May. Housing’s unexpected resiliency was one of several recent near-term data points that have “clearly been less discouraging than was expected even a few weeks ago,” according to a note from RBC.

But in the immediate future, pressure is likely to mount on the loonie’s current three-week winning streak against the US dollar.

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