CAD trades higher as manufacturing PMI hits fresh record

Summary:

• Canadian Markit manufacturing PMI hit fresh record in June

• Higher oil prices boost Canadian dollar

• USDCAD eyes a break below the 61.8% retracement level

In the afternoon investors were offered some data from the US and Canada. The Canadian manufacturing PMI reading advanced for another month bringing the gauge to the highest levels since 2010.  The US durable goods orders reading turned out to be USD-positive as we saw data coming in better-than-expected as well as prior figures being revised higher. USDCAD remains in the vicinity of 61.8% Fibo level of last major slump and may be eyeing to break lower.

The Markit manufacturing PMI reading moved to the fresh record in June. Source: Macrobond, XTB Research

The IHS Markit Manufacturing PMI reading was the sole data release from the Canada scheduled for release today. Moods among Canadian manufacturers remain upbeat as the reading moved from 56.2 pts in May to 57.1 pts in June. It is worth to note that this is the highest reading of this index at least since it was first time published in the second half of 2010. Survey respondents provided some interesting insight into the industry. Firstly, a rise in new work reflects clients ambition to complete orders and increase inventories prior to the implementation of steel and aluminium tariffs. Secondly, the ongoing trade spat between the US and China exerted pressure on particular links of supply chains causing the fastest increase in input costs since 2011. Having said that, we may see the Canadian inflation accelerating in the upcoming months in case manufacturers succeed in passing higher input costs onto consumers.

Durable goods advanced on YoY basis despite shrinking MoM. Source: Macrobond, XTB Research

Apart from the Canadian PMI figures concerning US factory and durable orders in May have been released today. This was the final reading for May thus no major change to the prior value has been expected. Nevertheless, the Factory orders advanced 0.4% MoM while the market expected them to remain intact (0% MoM). Moreover, April’s reading has been revised up from -0.8% MoM to -0.4% MoM. The core gauge showed 0.7% MoM advance with prior reading being revised from 0.4% MoM to 0.9% MoM. When it comes to the durable goods orders they have shrank for another month. After April’s reading showed -0.6% MoM the May’s one pointed for a 0.4% MoM decline against expectations of 0.5% MoM downside. No change was observed in the core durable goods orders (0% MoM).

USDCAD trades in the vicinity of 61.8% Fibo level of the last major decline. Rising oil prices boost CAD suggesting that a break lower may be on cards. Source: xStation5

USDCAD has been declining as of late. The pair advanced when the US data pack was published. Taking a look at the daily USDCAD chart we can see that the pair pulled back recently to the 61.8% Fibo level of the last major slump starting in mid-2017. The Canadian dollar is being boosted today by rising oil prices as Canada is one of the world’s major oil producers thus its valuation is also impacted by the oil price movements. In case sellers manage to break below the earlier mentioned retracement level the next stop could be 1.29-1.30 area where the long term support zone is localized (red colour on the chart).