Data releases in China and here in Canada during the next two days will be watched closely by market watchers and have the ability to create further instability in global markets. Tuesday will see China release its 2015 fourth quarter GDP results, while on Wednesday, the Bank of Canada will update its monetary policy plan for the country. Each of these reports has the potential to have impacts on commodity markets.
Associated Press polls suggest that China's 2015 fourth quarter GDP could be reported anywhere from 6.4% to below the 6.9% reported for the third quarter and the lowest seen in 25 years. Disappointing data could be viewed as a troubling sign for commodity demand within the world's second largest economy and lead to selling in the already uncertain global commodity and equity trade. Should crude oil get caught in the crosshairs, given a weak report, the potential exists for the Canadian dollar to be dragged along.
Regardless of where growth is pegged, impacts to agricultural commodities may remain muted. December imports of soybeans were reported in China's official data to total 9.12 million metric tons, up 6.9% from December 2014, while January-through-December imports of soybeans were reported at 81.69 mmt, up 14% for the year.
The other report which will be closely watched is the Bank of Canada's Wednesday announcement surrounding their latest plan for Canadian interest rates. Two rate cuts in 2015 saw Canada's overnight rate fall to .5%, a move designed to stimulate the country's economy although has struggled to achieve the desired impact. Bank of Canada Governor Stephen Poloz floated what may be a trial balloon in December by suggesting the notion of negative interest rates as a tool in the tool-box which could be considered in future policy. This would come at a time when the U.S. policy is focused on increased rates.
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Bloomberg reports today that three of Canada's five major banks are expecting a cut on Wednesday, while overall, 13 of 27 economists are expecting a cut while 14 suggest that rates will remain unchanged. Meanwhile, Monday's media showed growing concerns of "currency instability", with the Financial Post sharing economists' warnings that the dollar has fallen too far, too fast and can have negative impacts on both public and business confidence. The National Bank of Canada is suggesting that the Canadian dollar could fall to 66 cents this week should the Bank of Canada report a rate cut on Tuesday which compares to the all-time low of $.6186 CAD/USD reached in January 2002.
Philip Shaw, Ontario grain producer and DTN Columnist, suggested in the Grain Farmers of Ontario Monthly Market Trends that "the elephant in the room is no longer China or the crop that was grown in 2015. It is the Canadian dollar." The next few days could prove volatile and should keep cash marketers on their toes.
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The Bank of Canada has reported that "the negative effects of the oil price shock are increasingly spreading beyond the energy-producing regions and sectors." Has your region felt the impacts on declining commodity values such as oil?
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