USD/CAD – Loonie Bear Lost In No Man’s Land

• Canadian Housing starts plummet in cold February
• Consumer confidence not in sync with the BoC
• Loonie Bulls look to Friday’s Canadian jobs report for support

The CAD ($1.2590) is doing its best to gather some form of momentum this Monday despite last month’s sharp drop in Canadian housing starts.

New housing starts headlines plummeted to annualized +156,300 units from a robust +187,000 in January. Market expectations were looking for a relatively small pullback toward the +177,000 region. The much bigger-than-expected pullback will have investors wondering if this is maybe the beginning of a housing slump in Canada.

Looking at the CAD in isolation would suggest that a large percentage of the market may be happy to discount the disappoint headline print as being a “weather caused aberration.” Winter in Canada is not the ideal homebuilding season (especially after the last two winters), and analysts will be quick to point out that the last two winter reports were immediately followed up with a much stronger headline in the following month.

The Bank of Canada: One and Done

Looking past the harsh February weather, homebuilding in Canada remains stable and in line with fundamentals. The greater issue is commodity prices. Plummeting crude rates have yet to fully show up in the Canadian data. The land of the ‘loonie,’ as the Canadian $1 coin is called, remains a massive net exporter of crude, and plunging prices over the past 10 months happened to influence Bank of Canada (BoC) Governor Stephen Poloz to deliver a surprise rate cut in January. At last week’s monetary policy meeting, the governor appeared to be a tad more optimistic on the Canadian economy. The impact of the oil price shock may be even more “front loaded” than the central bank had forecast the previous month. This allowed the BoC for the time being to be “one and done” in terms of a tighter monetary policy cycle.

Nevertheless, the latest consumer confidence data (-11.4 points to 95.6 in February) from the Conference Board of Canada suggests that Canadians may be less confident about the economic outlook than the governor. The percentage of respondents expecting fewer job prospects increased to +39.3% from +30%. The bulk of the pessimism about the jobs market was most evident in Ontario.

Going forward, and like all prudent central banks, the BoC is expected to rely heavily on economic releases in forecasting the next move in their overnight rates. The main domestic highlight this week will be Friday’s unemployment data for February. Analysts expect the Canadian job market to create +22,000 new jobs for the month, and push the headline unemployment rate down to +6.5% from +6.6%.

USD/CAD is off both its post-nonfarm payrolls data at an intraday high of $1.2627, generally drifting in no man’s land under the psychological $1.2600 handle. The loonie is finding it difficult to make any headway despite the weaker minor headlines prints of earlier today. The USD bulls are happy to step aside until a clearer picture does emerge. This is not just true for the CAD, but also for the U.S. dollar and its major crosses.

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