US and CAD trade data released ahead of BOC decision

Summary:

• US trade deficit jumps to 5-month high

• Canadian equivalent falls to lowest in over a year

• USDCAD near 7-week highs ahead of BOC decision

North America trade has been a hot topic lately with the NAFTA negotiations dominating many press stories. The US and Canada have yet to reach an agreement on what their future trading relationship will be despite the former finalising a deal with their southern neighbour Mexico. While the outcome of these discussions are arguably the single biggest driver for the Canadian dollar, it is interesting to look at recent trade data to assess the current state of play. This afternoon the latest trade balance figures for both countries were simultaneously released with the US deficit jumping to its largest in 5 months whereas the Canadian deficit was almost erased entirely after falling to its lowest level in more than a year.

First off the US. For the month of July the trade balance fell to -50.1B from -45.7B previously (revised higher from -46.3B). This is the biggest deficit since the figures for March and also represents the largest jump since March 2015. Some interesting components of the release show that exports fell more than previously (-1.0% vs -0.7% in June) while the US-China trade deficit of -36.8B (-33.5B prior) will likely attract the ire of President Trump. Also the US-OPEC trade deficit increased to -3.46B from the June deficit of -1.83B.  

The core US Trade Balance as a share of GDP showed a fairly large drop in the latest release and is now back near the lows seen earlier this year which themselves weren’t far from 25-year lows. Source: XTB Macrobond

While US trade runs at a larger deficit, their northern neighbour had some more positive news with the Canadian trade balance for July rising to -0.1B from 0.7B previously (revised lower from -0.6B). This is comfortably above the -1.1B consensus forecast and marks the 3rd time in the last 4 releases that this has been the case. Furthermore, you have to go back to the data fro April 2017 to find as higher a reading as the deficit for the month in question has been almost entirely wiped off.  

The Canadian trade balance to GDP has benefitted from a rise in exports of 0.8% (mainly from higher crude prices) but overall it remains low compared to the readings seen so far this century. Source: XTB Macrobond

When you get the simultaneous release of US and Canadian data which shows differing fortunes as it has today, the USDCAD pair can be particularly sensitive. We have seen some downside in the cross in the past hour since the release although the moves are fairly measured. This is likely due to the fact that the Bank of Canada are set to announce their latest policy decision in around 20 minutes, and as such CAD traders are biding their time to see if there’s any major developments.

USDCAD has shown little reaction to the data and remains close to its highest level since mid-July. Price has broken out up and above a falling channel that has contained price since June. 1.3205 is the next immediate level to look for resistance with a break above there targeting 1.3290 and possible even 1.3385. Source: xStation