Canadian Dollar -March 14-18

Inflation data is the major event this week. Here is an outlook on the mat events ahead.

Canada’s trade surplus decreased to just C$116 million ($118 million) in January since strong Canadian dollar increased imports up at a considerably faster pace than exports. Even though the export sector has greatly improved, it faces considerable challenges due to the currency’s persistent strength .

USD/CAD daily chart with support and resistance lines marked. Click to enlarge:

1. Capacity Utilization Rate: Monday, 12:30. Canada’s resource utilization rate rose more-than-expected in the third quarter to a seasonally adjusted 78.1% from 76.9% in the preceding quarter. Analysts had expected the capacity utilization rate to rise by 75.8%.  This was the fifth consecutive increase indicating expansion. Another rise to 79.1% is predicted now.
2. Labor Productivity: Tuesday, 12:30. Canadian labor productivity unexpectedly rose 0.1 % in the third quarter after falling 0.6% in the previous one. Labor productivity was 1.1 percent higher in the third quarter than the same period a year earlier. Companies started to purchase new imported equipment with the strong Canadian dollar increasing Labor productivity. This trend is expected to continue with 0.3% gain expected this quarter.
3. Manufacturing Sales: Wednesday: 12:30. Manufacturing sales climbed moderately in the past months rising 0.4 % when analysts predicted 2.3% gain. The low figure came as a surprise following the surge of 10.8% in exports the same month. A big improvement of 1.5% is forecasted.
4. Foreign Securities Purchases: Thursday, 12:30. Foreign investors added $9.6 billion in Canadian securities in December following 8.06 billion in the preceding month this was well above the $7.12 billion expected. Non-residents added $4 billion in Canadian stocks, a big jump from $180 million in November and $2.6 billion in money-market paper in December.  Foreign investors are expected to expand further to $10.36 million.
5. Wholesale Sales: Thursday, 12:30. Canadian wholesale trade rose by 0.8 % in December following 1.0% in the previous month. This is the fifth straight increase and in volume terms, sales were up 1.2 percent in December. Inventories declined by 0.5 percent, which points to increased future activity by wholesalers. Another increase of 1.1% is expected.
6. Inflation data: Friday 11:00. Canada’s inflation rate slowed in January on a moderation in energy costs and a decline in clothing prices. Consumer prices rose 0.3% in January after a flat figure in the previous month. The core rate was flat after it fell by 0.3 % in December. Core prices are not expected to surge until the second half of the year. CPI is expected to gain 0.4% while Core CPI is predicted to increase by 0.5%.

*All times are GMT.

USD/CAD  Technical  Analysis

USD/CAD began the week with hovering above the 0.97 line (mentioned last week) before pushing lower and going as low as 0.9667. But this fall was followed by a leap, which stopped just at 0.98. USD/CAD eventually closed at 0.9730, a little higher than last week.

There aren’t so many lines on the way down. The initial line is 0.97, which also served as support back in 2008, when the situation with commodity prices was similar to today’s. Next we find 0.96, which is a minor line – a stepping stone on the way down. The pair got closer to this line just now.

The fall to the all time low, back in November 2007, was quite fast – the record was set at 0.9056 – this is still far.

Looking up, we got another proof about the importance of 0.98 as resistance. USD/CAD couldn’t climb above this line after it was breached, over and over again. This line was also support in 2008. Very close by, 0.9840, which worked as a strong cushion in recent weeks, is the next and minor resistance line.

Further above,more minor resistance is found at 0.9840, which switched from support to resistance.  The distinctive line up the road is USD/CAD parity, although it was breached many times in the past.

Above, 1.0060 is the highest level in the past months and is another resistance line  – a minor one.  It’s followed by 1.0140, which  served as resistance in December and also as support in the past.

Even higher, 1.0280 also served in both directions, taking the role of resistance in the last encounter. 1.0380 was another resistance line, that capped a break more than once, and is strong resistance.

I remain bearish on USD/CAD.

It’s not only high oil prices. Canada’s job market is doing very well and leaves room for further gains for the loonie.

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/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.
• For the New Zealand dollar (kiwi), read the  NZD forecast.
• For USD/CAD (loonie), check out the  Canadian dollar.