Canada: Goods trade deficit expected to narrow to $3.0bn in September - TDS

According to analysts at TDS, Canada’s goods trade deficit is forecasted to narrow to $3.0bn in September, reflecting a moderate rebound in export activity while imports should see little change.

Key Quotes

“Exports are likely to benefit from a rebound in auto production while vehicle replacement in Texas and Florida will add to foreign demand. Labour disputes at a major assembly facility in Ontario add a source of downside risk but we expect they will have only a modest impact given that exports are coming off an abnormally low level.”

“The hurricane distortion in energy products is less clear cut but we expect an increase in petroleum exports to offset weaker demand from Gulf refineries. However, currency appreciation will continue to pose a risk. This will cap off a very weak quarter for Canadian exports after the soft handoff in June and a sharp decline in July. Even after a modest improvement in September, we look for trade to act as a sizeable headwind to Q3 growth.”

“Foreign Exchange: For near-term price action, Canadian data responses are key over the coming weeks. Notably, Canada data surprise momentum has softened quite dramatically over the past month, which is reflected in CAD. Against the rest of the G10, our measure of growth deceleration shows that CAD only lags NOK over the past three months. Conversely, US data surprises are showing decent momentum, which is likely to keep USDCAD anchored to the short-term data responses. USDCAD looks close to fair value based on our read of the cyclical drivers while long CAD positioning has been squeezed over the past month. Our hedge fund tracker shows positioning is close to neutral now from long CAD exposure last month. With TD coming in near market consensus on employment and trade, we think the USD response to the US data is likely inject more two-ways risks in the pair. Still, given positioning looks a bit cleaner relative to the past few months, we look at breaks of 1.29 as decent selling opportunities.”