MNI BOC State of Play: Weak Exports Support Tightening Pause

By Yali N'Diaye

     OTTAWA (MNI) - If the Bank of Canada was already warning it would take the

appreciation of the Canadian dollar "pretty strongly" into account back in

September, Thursday's trade data can only reinforce this view and the cautious

approach Governor Stephen Poloz highlighted on September 27.

     After sinking in June and July by about 5% each month, exports managed to

weaken further in August, when they contracted 1.0%, all due to a 1.9% drop in

volumes.

     The decline in real exports was also the third consecutive one, which had

not been seen since 2011.

     To make things worse, sales to Canada's largest trading partner fell a

further 1.8% in August after dropping 5.1% in July and 4.9% in June.

     To be sure, the BOC has already factored in a growth slowdown in the second

half of this year - while remaining above the potential estimated at 1.5% - the

question being the extent of the slowdown.

     And on the external front, the sharp deterioration of exports, one of the

key pillars of a sustainable growth as projected by the BOC, argues in favor of

a pause in the monetary tightening process.

     Friday will bring the September employment report, and with the BOC closely

watching wage growth, a disappointment on that front would further lower

expectations of a third rate hike in October.

     Analysts in a MNI survey expect the economy to add 15,000 jobs in September

after employment rose 22,200 in July, with the unemployment rate ticking up to

6.3% from 6.2%.

--MNI Ottawa Bureau; +1 613 869-0916; email: yali.ndiaye@marketnews.com

[TOPICS: M$C$$$]