Canadian Autumn Business Survey Highlights Strong Economic Outlook


CAD bulls received a further boost this week as the Bank of Canada’s Autumn Business Outlook Survey painted a positive picture. The latest update highlighted strong economic activity (even ahead of the NAFTA breakthrough) with solid demand, investment and employment intentions keeping the indicator around record levels.

The key takeaways from the indicator survey are:

1 – Strong retail sales

The indicator’s measure of future sales growth showed an increase from the prior reading in July reflecting the fact that strong US activity is likely to bolster Canadian growth throughout the rest of the year and into next. In the longer run, however, there is the likelihood that US growth will ease off as higher borrowing costs start to constrain capital flow and the government’s fiscal boost begins to weaken. For now, though, the strength in Canadian spending is fuelling a rebound in the survey’s investor indicator.

2 – Labour shortages remain

While Canadian wage growth has been slow over the summer, the latest BoC survey shows that businesses are still undergoing a labor shortage, specifically when it comes to sourcing labor with specific skills, such as those in construction.

Consequently, this should translate into higher wage growth over the coming months as firms are forced to pay higher rates for the skills they require.

3 – Higher oil prices

The critical issue for the BoC now is whether recent trade tensions will fuel a boost in inflation. While the latest readings show input prices rising fast, the impact of tariffs on consumer price inflation has, as yet, been quite limited with competition forcing firms to absorb most of the extra costs.

However, the rise in oil prices this year should be a strong, decisive contributing factor leading to a pickup in inflation over the remained of the year. With most reading showing core inflation around the bank’s 2% target, the BoC is widely expected to raise rates a further .25% when it meets next week.

Positioning in CAD over recent weeks has reflected a level of optimism in the market, or relief somewhat, in light of the breakthrough in NAFTA negotiations. Uncertainty around the talks had been a significant obstacle for the BoC which highlighted the issue several times in recent meetings. However, with negotiations having succesfully resulted in a new deal between the US, Canada, and Mexico, the BoC now looks on course to continue its program of policy tightening in line with earlier guidance.

COT positioning data shows that CAD short exposure has been reduced by over 50% over the last few weeks with CAD having been consistently bought on a net basis for each of the previous three weeks. Canadian data later in the week presents the risk for downside shocks to CAD with CPI data due on Friday, due to come in weaker than last time.

Technical Perspective

Canadian Autumn Business Survey Highlights Strong Economic Outlook

USD/CAD Daily Chart

For now, USD/CAD is still above the broken bearish long-term trend line. Price has been moving in a very structured manner over the last year and a half: note the symmetrical upward moves in price with the pair potentially sitting at the start of a further leg higher. If this upward drive matches the previous rallies, this will complete into the 1.3657 level, just ahead of the 1.3708 level 2017 high.


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