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The Canadian dollar reached a 14 month high against the greenback during September with USD/CAD bottoming out at 0.9632. But later on, things changed against the loonie.

The forces moving the currency have somewhat shuffled:

  • Oil: C$ has shown much more sensitivity to the price of oil – Middle East tensions on one hand and fears about global growth on the other hand rocked the price of the black gold and the loonie felt it more than beforehand.
  • Central Bank Still Hawkish: The Bank of Canada remained relatively hawkish despite the global slowdown, but it has less impact on CAD than beforehand.
  • QE3 Backlash: The Canadian dollar was one of the clearest examples of “buy the rumor, sell the fact” regarding the Fed’s long awaited QE3 announcement. After the initial ride, C$ saw a significant selloff.
  • Unstable employment: The Canadian job market corrected very nicely in August and saw a tremendous gain of 34.3K, more than the losses beforehand. Nevertheless, another convincing figure is necessary to show the resilience of the Canadian job market, especially as the unemployment rate didn’t move.
  • International Trade Falling: This can be seen in a worse than expected trade deficit of 2.3 billion and in the Foreign Securities Purchases figure that disappointed. Canada needs strong exports to the US and to other trade partners. The global slowdown hurts the loonie.
  • Strong internal demand: The nice rise in retail sales and a better than expected GDP result show that Canada is still doing well. Worries about the housing bubble remain, but they are somewhat on the backburner.

All in all, the Canadian economy is still doing well, but it is more vulnerable to external shocks, and so is the loonie.

This article is part of the October monthly forex outlook. You can download the full report, including the currency technical outlooks and the relative strength index by joining the newsletter in the form below.

Further reading: Canadian dollar forecast.