Forex Investment and Currency Trading

• Event Date - November 10
• Event - Housing Starts (October)
• Market Consensus - 200K

Economics: The Canadian housing market boom is over, and the forecast is for leaner times ahead. Indeed, with a sluggish domestic economy and tighter lending conditions, Canadian housing activity should continue to cool, though the moderation in activity is expected to be both measured and orderly. For October, analysts expect Canadian residential housing starts to fall to 200K, from 219K in September. Most of the declines are expected to come from the volatile multi-unit component, though single-unit starts are also likely to be lower. In the coming months, as builders slow down on the pace of new building activity, market expects residential housing construction to remain subdued, with starts sitting roughly within the 190K to 210K range. 

 
Foreign Exchange: Since the Canadian dollar actually lost ground following the stronger than expected building permits figure on November 6, clearly there are bigger issues driving USDCAD. That being said, given the concern about the health of Canada’s housing market, a downside surprise to housing starts would likely have a much bigger impact on CAD than an upside surprise. 
 
Fixed Income: Although recent building permit activity jumped higher, it was purely the result of institutional activity and does not have a bearing upon housing starts.  Although the Canadian housing dynamic bears little resemblance to the U.S., it is clearly correcting, and the risks extend primarily to the downside for the coming housing starts release for October.  Recommend being long Canadian bonds going into this report, though be careful that the G-20 meeting over the weekend has the potential to rile the market between now and then.