CAD: Manufacturing activity likely increased by 0.3% m/m in October – TDS

Canada’s manufacturing activity is forecast to increase by 0.3% m/m in October, unchanged from the prior month's pace suggest analysts at TDS.

Key Quotes

“We look for manufacturing gains to be driven by a stronger transportation sector while higher gasoline prices should drive any improvement in the extraction industry. Looking at transportation, a rebound in motor vehicle exports suggests higher manufacturing output during October while aerospace could see further upside after bottoming in August. Outside of transportation, we see few reasons to be optimistic.”

“The sale of energy products will benefit from a sizeable bounce in the price at the pump (only to reverse in November), but there is less scope for output to push higher. While petroleum output in October is typically distorted by refinery maintenance, shutdowns during the month look to be in line with seasonal norms. Furthermore, with total manufacturing hours worked little changed, there is nothing to indicate a broader pickup in activity. As was the case in September, manufacturing sales growth will be driven largely by prices, leaving volumes little changed or lower on the month.”

“Foreign Exchange

In the wake of the December Fed meeting, liquidity will come at a premium for FX markets. This setup should keep currencies confined to recent ranges but reduced liquidity could lead to bits of intraday turbulence on news and other events. For major currencies, we think the hangover from the FOMC meeting will be the dominant driver over the next few sessions so expect little market impact from the manufacturing report. Even so, we expect a bit more consolidation in CAD (and other majors) as markets adjust positioning in the wake of the FOMC. Canada data surprises have inched higher recently and in level terms look set to peak shortly. For tomorrow’s report, TD is below consensus, which could go some ways to offsetting some of the support to CAD from a softer greenback. Our estimates show that USDCAD looks cheap to cyclical drivers, so we like reloading on long exposure near 1.30 ahead of the New Year.”