Building Permits (MoM) (SEP) (13:30 GMT; 08:30 ET)
Expected: 1.8%
Previous: 1.4%

Ivey PMI (OCT) (15:00 GMT; 10:00 EST)
Expected: 55.0
Previous: 56.0

How Will The Markets React?

Despite the rapid appreciation of the Loonie since early this year, the view of the Canadian economy remains remarkably sanguine after the nation’s labor market surprisingly added five times more jobs than expected in October, pushing the unemployment rate to a 33-year low of 5.8 percent. Indeed, the economy has been buoyed by growth in the services sector, especially when it comes to employment. It would seem that the Canadian dollar’s move to multi-decade highs would eventually take a toll on export growth, especially with their biggest trade partner (the US). However, approximately half of the exports shipped out of Canada consist of commodities, and with demand and prices for these goods still red hot, output by Canadian producers is unlikely to let up immediately. As a result, labor markets should remain tight, helping to fuel demand for consumption goods and keeping the housing sector resilient. In fact, requests for building permits are expected to have risen 1.8 percent in September, suggesting that housing starts and other construction projects will grow in coming months. Meanwhile, the Ivey Purchasing Managers Index is anticipated to ease back slightly to 55.0 from 56.0. Nevertheless, as long as the index holds above 50, signaling expansion, a pullback in the figure is unlikely to spark a large sell-off in the Canadian dollar or in Canadian equities.

Bonds – 10-Year Canadian Government Bond Futures

Price action in Canadian government bond futures has shown an all-out war between bulls and bears, as the daily chart now shows a megaphone pattern, suggesting that considerable volatility looms ahead. Furthermore, the pattern indicates some potential for a top, and a push below support at 112.63 could find CGBs plummeting lower this week. The release of upcoming Canadian economic data could help the case for CGB declines, as the news is likely to point to resilience in the housing and business sectors. However, sharp declines in the S&P/TSX composite index or surprisingly negative Canadian data could override and lead CGBs up to the 113.50/58 level once again.

FX – USD/CAD

Crude oil at record highs, market-wide weakness in the greenback and a rate cut by the FOMC has allowed USD/CAD to continue to fall like a rock. Most recently the pair hit a multi-decade low of 0.9328, but this support level does not appear likely to hold up as a bottom which leaves USD/CAD open to further declines. Indeed, Canadian economic data and strong oil prices support the case for additional gains for the Loonie, and Tuesday is unlikely to prove differently. Building permits are anticipated to rise 1.8 percent while Ivey PMI is forecasted to fall back to 55.0 from 56.0, but it is the latter report that has the greatest potential to be a market-mover given the risks for a surprisingly strong reading. If Ivey PMI is indeed better than expected, USD/CAD could push down through 0.9300 towards the next level of support at 0.9223. On the other hand, signs that the Canadian economy has taken a sharp hit from the Loonie’s rally could allow the pair to bounce above the 0.9400 level.

Equities – S&P/TSX Composite Index

Compared to equities in the US, Canadian shares have held up slightly better as the S&P/TSX bounced from Fibonacci support at 14,247 on Friday. If commodities continue to rally, the S&P/TSX could remain supported by mining and energy shares, but traders should watch for Tuesday’s event risk. Canadian building permits are anticipated to rise while Ivey PMI is forecasted to fall back, but it is the latter report that has the greatest potential to be a market-mover. Despite the rapid appreciation of the Loonie, economic conditions in Canada have managed to remain resilient, creating upside risk for the Ivey PMI report. If the data proves to be stronger than expected, the S&P/TSX could gain towards the highs at 14,646. On the other hand, very disappointing news could confirm the possible double top formation on the daily S&P/TSX charts and find prices falling though near-term support at 14,247 to 14,157.

Terri Belkas is a Currency Strategist at FXCM.