CAD Receives Mild Boost from IVEY PMI

It may be a quiet morning in the foreign exchange market but it is a busy week for many countries around the world including the commodity producing countries such as Canada, Australia and New Zealand. The Reserve Banks of Australia and New Zealand have monetary policy meetings this week where investors will be listening in closely for clues on when the central bank will alter interest rates again.  None of the central banks are expected to change interest rates, but their comments could still trigger volatility in currencies. 

This morning, the focus is on the Canadian dollar. After hitting a 3 year high at the beginning of last month, the loonie has gradually given up its gains on the heels of weaker consumer spending and retail sales numbers.  However this morning's IVEY PMI report suggests that the recovery in Canada could be gaining momentum.  Manufacturing activity accelerated significantly last month after pulling back in April. The increase in production is rather unique considering that many countries reported slower manufacturing activity in May.  On a seasonally adjusted basis, the IVEY PMI index rose from 57.8 to 65.5.  Employers added workers at a faster pace last month while price growth accelerated.  Inventories and Supplier deliveries on the other hand, declined which reflects weakness beneath the headlines.

The Canadian dollar appreciated very modestly after the release because worries remain about how the Canadian economy would perform in the face of slower U.S. growth.  In April, building permits experienced its steepest decline in more than 5 years.  A soft housing market and changes to the amortization period caused permits to drop by 21.1 percent with permits in Ontario falling more than 40 percent.  Employment numbers are due for release from Canada at the end of the week and based upon the IVEY PMI report, employment is expected to rise for the second month in a row.