Inflation and weak manufacturing sector point towards a rate cut
Whilst Core Inflation (gold line) remains around the mid band of the 1-3% target, Total PCI has recently dipped below the 1%. Also not helping is the recent Manufacturing PMI data which shows the sector is at its lowest since the GFC and detreating at its fastest rate in the survey's history. These two combined could see BoC cut interest rates, or at the very least provide a stern warning of cuts in future.
Key findings from the September survey included:
- New orders are below 50 (contracting)
- Output Index also below zero as producers scaled back their operations
- Meaning employment within the sector decreased for the 3rd consecutive month
- Production volumes declined for the second month running
- Renewed fall in new business levels
- Survey-record reduction in input buying as manufacturers sought to streamline inventories
The Canadian economy could be a bellwether for Australia
With Canada now within a technical recession Australian's should be watching closely as there are similarities between the two commodity driven economies. We all know that Oil prices have suffered heavy losses these past 18 months and this has finally taken its toll in the Canadian economy. However with commodities in a secular bear trend, Iron Ore (the main export of Australia) near record lows whilst Chinese imports of Australian goods are significantly down then we could see something similar in future.
Technically USDCAD could be carving out an inverted H&S pattern
If successful the projected pattern could see it trade around the 1.3320 area but judging from the strong levels of resistance I doubt it will be a clean break higher. We could take a break above 1.307 resistance as extra confirmation of the neckline break and seek bullish setups o lower timeframes to the outlined resistance zones.
Only a break below the May '15 bullish trendline and 1.278-283 resistance zone warns of a larger reversal at play.