The Canadian dollar continued retreating against the US dollar as USD/CAD reached an 8 month low. A rate decision, Ivey PMI, Housing data, and Employment data are the major events this week. Here is an outlook on the major market-movers and an updated technical analysis for USD/CAD.
The Canadian economy shrank by 0.2% in December, in line with market predictions in light of a decline in investments and import while exports increased slightly. On a yearly basis, Canadian economy expanded by 0.6% during the period reaching half the forecast predicted by the BOC in January. Finance Minister Jim Flaherty remarked he is confident the economy is marching forward yet risks from global markets remain. Will the Canadian show a real improvement in the coming months? It’s also important to note that the C$ is vulnerable to risk: the move to an 8 month low came on the Italian election results. More bad news from Europe could impact the loonie.
Updates: There are no Canadian releases until Wednesday. We could see USD/CAD show some movement after Wedesday’s releases, which include the Bank of Canada interest rate announcement and rate statement, and Ivey PMI. The markets are expecting the benchmark interest rate to remain at its current level of 1.00%. USD/CAD is steady, as the pair was trading at 1.0264. The BOC kept interest rates at 1.00%. The accompanying statement was on the dovish side, with the central bank noting that inflation was weak, and rates would likely remain at these levels for some time. Ivey PMI plummeted, dropping to 51.1 points from last month’s 58.9. The estimate stood at 56.2. Canada will release Trade Balance and Building Permits later on Thursday. The loonie continues to struggle, as USD/CAD was trading at 1.0314.
- Rate decision: Wednesday, 14:00. Bank of Canada acknowledged that Canadian economy is growing at a slower pace than expected, however a pickup is expected later this year. The broad picture suggests interest rates aren’t going to change anywhere soon. The rate was maintained at 1.0% in line with predictions amid slow inflation and household debts. No change is forecast.
- Ivey PMI: Wednesday, 15:00. Purchasing activity in Canada increased more than expected in January, reaching 58.9 from 52.8 in December, beating market predictions for a 53.7 reading. The rise occurred amid a global improvement of sentiment in US and Europe. Annual growth in 2013 is expected to reach 1.9%, a bit below the previous 2.2% forecast. A decline to 56.2 is forecasted.
- Building Permits: Thursday, 13:30. Canada Building Permits continued to decline, dropping 11.2% in December following 14.5% drop in November amid declines in the non-residential sector and the residential sector. The commercial sector registered drops in office buildings, recreational facilities, and warehouses, while the institutional component declined mainly because of fewer medical and educational buildings. A rise of 5.4% is predicted this time.
- Trade Balance: Thursday, 13:30. Canada’s merchandise trade deficit contracted in December, to $901 million from $1.7 b billion the previous month, better than the $1.5 billion decline forecasted by analysts. However the main improvement occurred in imports rather than in exports. Exports, which represent about a third of the Canadian economy, plunged by 0.9% to $37.6 billion indicating a temporary relapse. Canadian economy is expected to improve in the coming months. A trade deficit of $600 million is expected now.
- Housing Starts: Friday, 13:15. Canadian housing starts edged down in January to 160,577 units after registering 197,118 units in December. Both single and multiple starts fell, particularly in Ontario. The number of starts in January was well below the 196,000 forecasted by analysts. A rise to 173,000 is predicted now.
- Employment data: Friday, 13:30. Canada’s economy unexpectedly lost 21,900 jobs in January however but at the same time, there was a decline in the number of people seeking work squeezing unemployment rate down to a four-year low of 7.0%.Economists expected a 4,500 job addition with 7.2% unemployment rate. The average hourly wage of permanent employees rose by 2.0% compared to January 2012, down from the 2.5 percent year-over-growth seen in December. A gain of 7,800 jobs is expected with a rise of 0.1% in unemployment rate.
- Labor Productivity: Friday, 13:30. The labor productivity of Canadian businesses shrank more than expected in the third quarter, declining 0.5% after a 0.6% decline in the previous quarter. Economists expected a 0.2% decline in productivity. The real gross domestic product of Canadian business was flat while the hours worked climbed by 0.4%. a small decline of 0.1% is expected now.
* All times are GMT.
USD/CAD Technical Analysis
Dollar/CAD kicked off the week with a rise above the 1.0250 line, but the 1.03 line (mentioned last week), clearly worked as resistance, and the pair was knocked back. USD/CAD then made another move higher, breaking above 1.03, but eventually losing this line. Despite this late false break, USD/CAD is becoming a much more technically friendly pair.
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.
1.0360 was a pivotal line in June 2012 and is now significant resistance. It proved its strength in June 2012. 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. The break above this line in March 2013 is not confirmed.
1.0250 was a peak before the pair moved below parity a long time ago. 1.02 was the trough of 2009 and remains important since then, working in both directions. These are the key lines for now.
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. Its stubborn behavior as resistance in December proved its strength.
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.
0.9817 was a stubborn peak in September and is now significant support. As seen in December 2012, this line worked as a cushion. It worked very nicely in January 2013. Lower, 0.9725 worked as strong support back at the fall of 2011 and showed its strength once again in October 2012..
I remain bullish on USD/CAD.
The Canadian dollar remains vulnerable to global worries such as weaker Chinese PMIs or the comeback of the political mess in Italy. In addition, the cooling down of the Canadian economy and especially the housing market, is certainly worrying. The BOC could contribute to a weaker C$ once again. Note that the price of oil has fallen to the lowest in two months. And, Canada still needs to correct the big loss in jobs reported last time. Will this happen now?
- 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.