CAD: Manufacturing sales are forecast to have fallen - TDS

Research Team at TDS, suggests that after two months of very robust gains, manufacturing sales are forecast to have fallen by 1.8% in February.

Key Quotes

“A disappointing print would mirror the performance of February exports and is expected to be driven by several sectors that are poised for a retrenchment. Of note, the transportation sector is likely to return to earth as auto production normalizes and a stronger CAD dents aerospace production priced in USD.

Shifting the focus to the volumes metric, an observed fall in industrial prices is likely to translate to a less severe drop in manufacturing volumes. However, some retrenchment in activity can be expected in the month of February given the outsized 0.6% monthly increase observed for January industry-level real GDP.

USD/CAD marked a new low this week for the year, pushing below 1.28 for the first time since mid-2015. We think the decline in USDCAD is starting to lose steam given 1) over-extend positioning and technical indicators and 2) possible growth slowdown at the start of Q2. A weaker manufacturing print would likely support a squeeze in USDCAD, leading to a covering of short USD positions.

Indeed, our read of positioning data shows that CAD longs have reached 80% of the three-year max, which is consistent with turning points in market sentiment. In turn, a peak in Canadian data surprises and the start of more balanced growth numbers could support a recovery in USDCAD. For an upside break, the key level to watch is 1.30, which opens up a test of 1.320.”