Canadian dollar eyes GDP / EURAUD selling ahead? [Video]

EURAUD selling ahead? [Video]

(Giles Coghlan LLB, Lth, MA – HYCM)

The EUR has reasons for weakness after the last batch of PMI data points released on the 23rd of June. The German June PMI flash readings came in below the market’s minimum expectations as did the Eurozone’s composite and services PMI’s. This means that the ECB are facing a slowing Eurozone and this may counter some of the calls for more aggressive rate hikes. The slowing potential growth outlook for the Eurozone can weigh on the euro from here.

The AUD has reasons for strength with the RBA just starting their rate hiking cycle. Also, the more optimistic moves from China this last week as more and more COVID restrictions get lifted are a boost to the AUD.

The seasonals also favour EURAUD selling.

From July 01 through to July 23 the EURAUD has fallen 11 times over the last 15 years. The average fall has been -0.78%. Will EURAUD repeat this seasonal pattern again this year in line with the seasonal pattern?

Major trade risks: Sharp falls in Iron ore and copper prices can weaken the AUD. If China goes into more COVID lockdowns this can weaken the AUD.

Canadian dollar eyes GDP

(Kenny Fisher – MarketPulse)

The Canadian dollar is trading quietly today, just above the 1.2900 level. That could change in the North American session, with the release of Canada’s GDP for April.

GDP expected to soften

Canada’s monthly GDP releases have been pointing southwards. In March, GDP slowed to 0.7, down from 0.9% prior. The April estimate stands at just 0.3%. This is a sign of concern, although there are some bright clouds on the horizon. The war in Ukraine, which has disrupted oil and grain supplies and sent commodity prices soaring, has proved to be a boon for the Canadian economy, as Canada is the world’s fourth-largest producer of both oil and wheat. The IMF is projecting that Canada will lead the G-7 nations in growth with a GDP of 3.9%.

Canada has not been immune from spiralling inflation, as headline CPI rose to 7.7% in May, its highest level since January 1983. Similar to the Federal Reserve, the Bank of Canada has scrambled to tighten policy in order to wrestle down inflation, which has become the central bank’s public enemy number one. There are expectations that the BoC may follow the Fed’s lead and deliver a super-size 0.75% rate hike at its July 12th meeting. Inflationary pressures are broad-based across the economy, which raises the risk of inflation (and inflation expectations) becoming entrenched.

The BoC’s aggressive rate-hike cycle has led to the start of a correction in the housing market, but the long-sought-after inflation peak remains elusive. The BoC has the daunting challenge of trying to guide the economy to a soft landing – if interest rates rise more than the economy can handle, the result will be a recession. The BoC, like the Fed, appears to prefer a recession over entrenched inflation, which is why we can expect the BoC’s aggressive rate moves to continue.