The Canadian dollar eventually lost some ground to the USD in a week that saw range trading. Inflation data and GDP are the highlights of this week. Here is an outlook on the major market-movers and an updated technical analysis for USD/CAD.
The loonie quickly became immune to the Cypriot crisis. Canadian retail sales edged higher than expected in January, amid a rise in motor vehicle and parts sales, boosting Canadian retail trade by 1.0% from a 2.3% decline in December. Meanwhile Core sales increased 0.5% after plunging 0.1% in December topping forecast of a 0.4% rise. Yet, Manufacturing Sales disappointed with a 0.2% decline in January to $48 billion, the fourth decline in five months. Will the Canadian economy show a more solid recovery in the coming months?
Updates: BOC Deputy Governor Agathe Cote spoke at a financial conference in Montreal. Canada’s inflation numbers looked solid, as Core CPI climbed 0.8%, beating the estimate of 0.3%. CPI rose to 1.2%, easily topping the forecast of 0.6% and this sent the Canadian dollar higher. GDP will be released on Thursday. USD/CAD is fluctuating in Wednesday trading, as the pair was trading at 1.0165. GDP, a key release, came in at 0.2%, just beating the forecast of 0.1%. RMPI fell in the March reading to 2.2%, but exceeded the estimate of 1.9%. IPPI gained 1.4%, well above the estimate of 0.6%. The markets will be closed on Friday, as it is a bank holiday. USD/CAD is steady, as the pair was trading at 1.0165.
USD/CAD daily chart with support and resistance lines on it. Click to enlarge:
- CPI: Wednesday, 12:30. Canada’s headline consumer price index increased by 0.1% in January, lower than the 0.3% rise expected. On a yearly base, inflation rate declined to 0.5% from 0.8%. Meanwhile core measure prices climbed 0.1% in January, following a 0.6% decline in December, 1.0% higher than a year ago. Analysts believe that the decline of inflation in the second half of 2012 was in part due to the increase in excess capacity, but temporary factors have also played a part in this slide. Steady inflation expectations and the continuation of growth will ensure both the headline and core rates will achieve the 2% target by year end. CPI is expected to gain 0.6%, while Core CPI is predicted to climb 0.3%.
- GDP: Thursday, 12:30. Canada’s gross domestic product declined in December 0.2% following a 0.3% gain in the previous month. Yet a 0.2% gain was registered in the fourth quarter. Canada’s economy expanded 1.8% in 2012 after growing 2.6% in 2011. A rise of 0.1% is anticipated.
- RMPI: Thursday, 12:30. Raw materials prices edged up 3.8% in January, the biggest gain since November 2011, rebounding from a 2.0% drop in December. Analysts expected a smaller gain of 1.2%. The sharp climb was mainly due to a rise in mineral fuels and crude oil. Meantime, Canadian industrial product prices remained unchanged for the second straight month in January, amid lower prices for chemical products offsetting gains in fuel oil, gasoline and other categories. RMPI is expected to edge up 1.9%, while IPPI is forecasted to gain 0.6%.
- Annual Budget Release: Friday, 20:00. Canadian Federal Budget is written and presented annually by the Canada Government. The Federal Budget contains the expenditure planning and the anticipated revenue collection for the fiscal year. It also includes the future budgetary plan of the government. The fiscal year begins from March and the budget is normally released at the last week of February.
* All times are GMT.
USD/CAD Technical Analysis
Dollar/CAD began the week with a gap higher, but a first attempt to break above 1.0250 (mentioned last week), failed. After finding support at 1.02 the pair moved higher, but fell short of the 1.03 line. A further drop later on and more choppy trading resulted in a close at 1.0231.
Technical lines, from top to bottom:
1.0750 was the peak of ranges several times in the past few years, and is a very important line. 1.0660 was last seen in September 2011, but this line was also a long running swing high several times beforehand.
1.0523 was a peak back in November 2011 and is minor resistance. 1.0446 was the peak that the pair recorded in June 2012 and is a key line on the upside.
1.0340 was the peak during March 2013 and its position strengthens at the moment. Consequent rises failed to reach this line, and this could be a bearish sign. The round number of 1.03 was resistance at the beginning of the year and now returns to this role. It worked perfectly well during June – over and over again, until finally being run through.
1.0250 was a peak before the pair moved below parity a long time ago, and worked as support quite well in March 2013. It is weakening now. 1.02 was the trough of 2009 and remains important since then, working in both directions.
Another round number, 1.01, was a trough back in July, and switched to resistance afterwards. The line proved its strength several times in 2013. 1.0066 was key support before parity. It’s strength during July 2012 was clearly seen and it gave a fight before surrendering. It has a stronger role after capping the pair during November 2012, but has begun weakening.
The very round number of USD/CAD parity is a clear line of course, and the battle was very clear to see at the beginning of August 2012 and also in 2013. It is a clear separator. 0.9950 provided some support for the pair during November and worked as resistance earlier.
0.9910 remains the chart after serving as a bottom border for the pair in November 2012. It already managed to work as weak resistance in December 2012. 0.9880 showed that it is a clear separator in October 2012. It also had a role in the past. This line switches roles once again.
I am neutral on USD/CAD.
On one hand, the recent jobs report was excellent, and Canada also enjoys stronger US demand. On the other hand, the recent dovishness of the BOC and some fallout from the crisis in Cyprus could weigh on the loonie. Ranges work relatively well with this pair.
Further reading:
- For a broad view of all the week’s major events worldwide, read the USD outlook.
- For EUR/USD, check out the Euro to Dollar forecast.
- For the Japanese yen, read the USD/JPY forecast.
- For GBP/USD (cable), look into the British Pound forecast.
- For the Australian dollar (Aussie), check out the AUD to USD forecast.
- USD/CAD (loonie), check out the Canadian dollar
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