Canadian Dollar Declines On Weak Job, Building Permits Data

Canadian Dollar Declines On Weak Job, Building Permits Data
August 12, 2019

 

The Canadian dollar declined against the yen on Friday despite the release of upbeat housing starts data. The weakness in crude oil price, rise in the unemployment rate, and worse than anticipated decline in building permits has turned the Canadian dollar weak. On the contrary, the US-China trade war has increased the demand for safe haven assets such as the yen and gold. From a high of 80.20, the CAD/JPY pair declined to a low of 79.55 in a matter of 24 hours.

Canadian housing starts declined in July, mainly due to a decrease in construction of semi-detached, apartments and row houses. According to Canada Mortgage and Housing Corp., builders started work on 222,013 units (annualized), down 9.6% on m-o-m basis. The reported figures still surpassed economists forecast of 202,000 units. Multiple unit starts declined 12%, while construction of single-detached houses decreased 1.6%.

Bob Dugan, CMHC’s chief economist, stated that the “national trend” in housing starts increased in July, despite a decline in the adjusted level. Dugan said, “High levels of activity in apartment and row starts in urban centers in recent months continued to be reflected in the high level of the total starts trend in July.”

Despite the release of better-than-anticipated housing starts, the Canadian dollar was unable to gain against the yen as the job and building permits data did not match expectations.

Statistics Canada stated that the country lost 24,200 jobs in July, compared to June, and missed analysts’ expectation for an addition of 15,200 jobs. Total employment stood at 19.03 million. Notably, in June, the economy lost 2,200 jobs. While the number of full-time jobs declined by 11,600, the number of part-time employment dropped by 12,600. Furthermore, the unemployment rate increased to 5.7% in July, from 5.5% in June.

In other data released, Statistics Canada stated that the value of Canadian building permits fell by an unanticipated 3.7% in June to C$8.01 billion ($6.06 billion) as values of institutional and multi-family permits declined. Economists had anticipated a gain of 1.1% in June. Multi-family dwellings reported the most significant monthly drop, dropping 6.7% in June. In the previous month, building permits declined 12.2%.

The International Energy Agency said on Friday that worldwide oil demand between January and May increased at its slowest pace since 2008, mainly due to signs of a global economic slowdown and unresolved trade issues between the US and China. Crude oil is the largest export commodity of Canada.

Despite a drop in European inventories and cuts in OPEC output, oil prices hardly managed to rise by only a little more than $1 a barrel on Friday, with Brent crude futures gaining $1.15, or 2%, to settle at $58.53 a barrel and US West Texas Intermediate (WTI) crude futures rising $1.96, or 3.7%, to settle at $54.50 a barrel.

Commenting on the weakness in the oil market, UBS analyst Giovanni Staunovo, said: “despite a further cut in oil demand growth by the IEA, oil prices are trading marginally higher, as the demand growth cut was already announced previously by the head of the IEA and the agency still expects larger inventory draws for 2H19.”

The weak jobs data, gloomy outlook for crude oil, and the ongoing trade war between the US and China has considerably increased the chances of a rate cut by the Bank of Canada. The uncertainty is driving investors towards safe haven assets such as the yen. Therefore, fundamentals favor the CAD/JPY pair to remain bearish.

Technically, the CAD/JPY pair is declining after facing resistance at 80.20. The currency pair is also trading below its 50-day moving average. Additionally, the oscillator of moving average is also having a negative reading. As a result, we can expect the currency pair to move down in the short-term.

CAD - technical analysis - 12 Aug 2019

Disclaimer: Any financial trading analysis offered here is our opinion and is not intended as advice or direction for investors. We cannot guarantee the success of any trades made as a consequence of this article, and we encourage traders to incorporate a strong money management strategy to limit losses when they enter the markets. Please use this article as part of your own research before formulating strategies prior to trading.

Richard W

Richard W

Richard is the guy who know everything there is about the financial industry, working in a top firm for over 15 years, he will give the lowdown on some of the biggest companies in the world


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