Canadian Dollar Enjoys Optimistic Outlook

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The Canadian Dollar continued to strengthen overnight after comments were made by a Bank of Canada official the the nation’s economy is recovering.  As the markets moved back towards “risk on” currencies the last few days, the Loonie has benefited from this move.

Adding to the move in Canada was the fact that crude oil prices, which is the nation’s largest export increased yesterday.  At a time when most central banks are looking at lower rates the Bank of Canada is one central bank not afraid of raising rates and this is also aiding the currency.  The present rate of 1% has been in place for a little over two years, but the BOC has indicated in the last few months that a rise in rates is possible as it has been forecasted that the economy could reach full capacity in the second half of 2013.

Canadian job data is due out this morning and it is expected the will be an additional 15,000 jobs added last month, while the jobless rate should remain at 7.3%.  The USD/CAD has traded above and below the .9800 support area in overnight trading and I would expect a test later today of the .9780 support level.

Speaking of jobs data, the market awaits the release of the USD Non-Farm Payroll data and unemployment numbers later this morning at 8:30 am, EST.  Most analysts expect that the US will have added between 120,000 and 130,000 jobs in September.  The unemployment rate is also expected to increase from 8.1% to 8.2%.  As I seem to say every month, this seems to be the most difficult number for analysts to predict and it isn’t unusual to see these predictions to be way off the mark.  A much better number will give investors the confidence to add risk and should be beneficial to the US equity markets.

The EUR traded in quiet 30 point trading range overnight bouncing around the 1.3000 level as traders prepare to react to the NFP announcement.  The EUR seems to have developed a bid tone over the last few days and should close the week on a weekly high.  We remain comfortably within the 1.2800 – 1.3170 trading range.

Asian equity markets were mixed overnight.  All the European equity markets in trading higher at the moment, while the DOW Futures are relatively flat at 5:00 am.  This will certainly change after the NFP release.

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Matthew Lifson is a Foreign Exchange Trader and a Market Analyst. with Cambridge Mercantile Group.

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