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Canada's deficit position falls to the lowest level since 2008

CAD - Canadian Dollar

The USD/CAD pair is decreasing 0.1 percent (slightly stronger Loonie) towards 1.3292 (0.7523) this morning, following the release of Canada's balance of international payments in the second quarter, which narrowed by $10.2 billion to $6.4 billion. This is the lowest level since Canada returned to a deficit position at the end of 2008. The reduction mainly reflected a much smaller deficit on goods. According to Statistics Canada, the deficit on trade in products and services narrowed by $9.3 billion to $5.5 billion in the second quarter. Exports were up by $8.0 billion, led by higher sales of energy products. Imports were down by $1.3 billion, mainly on lower imports of aircraft and other transportation equipment and parts. Since 2009, Canada has recorded a current account deficit every year with services posting the most significant accumulated deficit, followed by investment income and goods. Other important pairs were losing against the Loonie this morning such as the EUR/CAD, GBP/CAD, NZD/CAD. They were falling 0.21, 0.18, and 0.15 percent respectively, given the weaker than expected economic data in those economies.

Regarding the U.S. - China trade war, it seems like the trade talks have kept the FX market on edge this week and it looks like it is going to stay this way for a while. According to Bloomberg, the White House says that it does not to expect a deal anytime soon, and China says it could retaliate on the planned tariff hike by U.S. President Donald Trump – though it prefers not to. Chinese Commerce Ministry spokesman Gao Feng said, "China has ample means for retaliation, but thinks the question that should be discussed now is about removing the new tariffs to prevent escalation.”

Key Movers

The Euro weakened in overnight trading against the U.S. dollar, and it continues in a free fall following the German preliminary CPI month to month release. The inflation rate in Germany, as measured by the consumer price index, is expected to be 1.4 percent in August 2019. According to Destatis Germany, consumer prices are expected to decline by 0.2 percent in July 2019. At the same time, the other important pairs such as EUR/AUD, EUR/CAD and EUR/NZD are falling 0.26, 0.21 and 0.11 percent respectively, after the release of German unemployment claims rate in August, which came in at 5 percent. The increase of this number represents the fourth straight month that joblessness has failed to drop. The unemployment change number came in at 4 k, which was higher than the previous number in July (1 K) and the expectation of 3.5 K. This bounce in unemployment provides a reminder that labor market conditions are beginning to soften amid the weight of fears of a recession in the German economy as well as in the Eurozone.

Expected Ranges

USD/CAD: 1.3265 - 1.3315 ▼

EUR/CAD: 1.4685 - 1.4800 ▼

GBP/CAD: 1.6162 - 1.6282 ▼

AUD/CAD: 0.8937 - 0.8978 ▼

NZD/CAD: 0.8373 - 0.8435 ▼