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Dual GDP Data Takes Centre Stage, Has Little
Effect |
Dual GDP Data Takes Centre Stage, Has Little
Effect
Canadian and US GDP figures were the main releases overnight. The US
growth numbers are certainly viewed as an indicator of US health, and any
notable departures from expectations can have a major impact on global
economic sentiment. And in Canada, whose currency has fallen out of favour
over the last month with much cross-selling (position squaring), these
figures were also very important.
In the US, the advance reading was 2.4%,
slightly missing expectations of 2.5%. Last quarter we saw an excellent
number of 3.7%, so things have marginalized, but growth is still firmly
positive. Amidst many short- and medium-term challenges for the economy,
this still bodes well, although growth did slow from the quarter previous.
Growth has remained positive for four consecutive quarters, but coming out
of a severe recession, economies would like to see a higher pace of
growth, as these figures do little to dent the massive unemployment which
was created as a result of the crisis.
Much of the growth was held back by a large
increase in imports, which surged 28.8%, outpacing exports by over 18%.
This deficit causes growth numbers to be impaired, but excluding trade,
the numbers were actually encouraging, with business investment, home
construction, and inventories (which added 1.1%, or over a third to the
overall growth numbers) all posting solid quarterly gains.
There has actually been a positive correlation
with US data and USD performance over the last month, which we did not see
during and after the crisis for many quarters. This could in fact be due
to currencies being oversold, but risk aversion sentiment has clearly
waned. Although there may be bouts of dollar strength due to bad news, we
expect this to continue as major risks diminish and the world once again
focuses on the fundamentals as we continue to move out of
recession—hopefully.
In Canada there were no surprises, with the May
growth numbers ticking up ever so slightly. Expectations were for a tepid
0.1% increase and Statscan did in fact deliver this number. Strength in
oil and gas extraction sectors offset a decline in services, which have
now struggled for two consecutive months. These numbers do not seem
significant, but it is interesting to note that the recession felt was not
nearly as strong for the whole of Canada as it was for the US, and Canada
actually grew at the fastest growth pace in a decade for the first three
months of the year. Q2 has slowed, but Canada is still on solid footing
economically.
Currencies Remain Elevated, CAD Slides
Sideways
The EUR broke up through 1.30 decisively yesterday in interbank trade and
has remained elevated along with the AUD and GBP, which are still enjoying
upward trends to end the week. These currencies have pulled back slightly
overnight with a lack of trading news to propel volatility, but this does
nothing to diminish the moves we have witnessed.
The Canadian dollar is a different story,
however, as it continues to be stuck in the summer doldrums, where it is
not mustering up any interest, except to persuade traders to continue to
exit their long trades, which helps to push the CAD lower against the
other majors, which are appreciating against the Big Dollar.
Today’s growth numbers added some volatility to
the market, but price action is little changed for many of the pairs half
an hour after the readings. The CAD is the notable exception from this and
has sold off 30 pts, in what seems to be common this month. It looks like
in Canada the summer has set in and the market is unwilling to move the
CAD higher, even with relative fundamentals. But after impressive gains
during the first half of the year (against the crosses especially), we are
not surprised to see a consolidation, though there likely will be some
volatility in the fall, if not sooner.
Have a great weekend!
Tyson Wright, Senior FX Trader
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