Loonie At Parity? Canadian Dollar Outlook

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Here is the most recent USD/CAD Canadian Dollar Outlook.

USD/CAD has fallen deeply in the past two weeks. This trend continued this week despite ongoing recession. Apart from GDP, there are 4 more crucial events any loonie trade should carefully look out for this week: Building Permits, Interest Rate decision, Ivey PMI and the Unemployment Rate. Let’s dive into their meaning (and timing) for the loonie.

Update, Wednesday, June 3rd, 10:00 GMT: Loonie Stays Behind.

The US dollar began the first week of June with another downfall. The Canadian dollar is one of the winners: USD/CAD now trades at 1.0857. Earlier, it dropped under 1.08. The fall goes on.

Two weeks ago, I wrote about an important week for the Canadain dollar. After last week’s quiet week, we are loaded with event. Here are the Canadian indicators. Note that 3 of them are on

  1. GDP: Canada is unique in providing a monthly GDP figure. GDP for the month of March fell by 0.3% as expected. This sums up to an annualized fall of 5.4% in the first quarter of 2009. Though slightly better than the US, this figure is quite bad. Since this exact result was expected, it only slightly bounced the descent of USD/CAD.
  2. Building Permits: Houses are an excellent measure of a country’s economy. Canada’s Building Permits moved like the forex market – wild! Last month, they rose by a whopping 23.5%. This time, they’re expected to drop by 9.2%. Since this number can make a big surprise, it’ll be quite adventurous to be at the market after the release. It’s published on Thursday at 12:30 GMT.
  3. Interest Rate decision: The Bank of Canada isn’t expected to raise the Overnight Rate above the bottom. At 0.25%, it can’t go lower. After the BOC exhausted it’s interest rate tools, the focus will be on the BOC Rate Statement. Commodity prices have risen lately. This rise affects Canada’s commodity oriented economy. On the otehr hand, Canada is very dependant on the US. So, will the BOC communicate optimism or pessimism? The wording statement will have a great influence on the USD/CAD. Note the timing: half an hour after the Building Permits.
  4. Ivey PMI: Released on Thursday at 14:00 GMT. The Purchasing Managers’ Index supplied by the Richard Ivey School of Business is a highly regarded indicator. Last month, it surprised by scoring above 50 – indicating optimism and economic expansion. This time, it’s predicted to rise from 53.7 to 54.3 – edge higher. If this index will have a different mood than the BOC Rate Statement, the loonie will go quite wild.
  5. Unemployment Rate: Canada’s employment market is suffering in this recession. The unemployment rate has risen to 8% from around 6% before the crisis began. It’s predicted to worsen and rise to 8.3%. A worse figure will hurt the Canadian dollar and send USD/CAD upwards. The accompanying figure is the Employment Change, published at the same hour – 11:00 GMT. While it’s not so “famous” as the unemployment rate, it’s no less significant for understanding the job market, and actually the whole economy. After surprising last time and rising by 35.9K, it’s expected to turn negative and fall by about 38K. These figures, released an hour and a half before the American Non-Farm Payrolls, will have a great impact on the loonie.

USD/CAD major tehnical lines

After breaking the big barrier of 1.1470, USD/CAD fell more and more. 1.08 also serves as support line, since it acted as a resistance line in September 2008. Yup, about 9 months ago.

The next line is around 1.04, which served both as a support line and as a resistance line during 2008. And of course, there’s the magical parity number: USD 1: CAD 1.

Tha’ts it for the loonie! For further reading:

Get the 5 most predictable currency pairs

About Author

Yohay Elam – Founder, Writer and Editor I have been into forex trading for over 5 years, and I share the experience that I have and the knowledge that I’ve accumulated. After taking a short course about forex. Like many forex traders, I’ve earned the significant share of my knowledge the hard way. Macroeconomics, the impact of news on the ever-moving currency markets and trading psychology have always fascinated me. Before founding Forex Crunch, I’ve worked as a programmer in various hi-tech companies. I have a B. Sc. in Computer Science from Ben Gurion University. Given this background, forex software has a relatively bigger share in the posts.

7 Comments

  1. In a slightly recovering economy id this an unwinding of the ‘flight to quality’ trade?
    and a fiscal play the CND gov’t has a much lower defict and debt to gdp?
    or just a commodity play?

  2. It seemed to me that the USD has had undeserved strength during this economic crisis, supported only by the retreat of the US investor (pulling their money back into US accounts and cash). This retreat has propped up a dollar that should have been falling otherwise. Any recovery, where US dollars start to flow back out to foreign equity markets will be pulling a trap door on the USD.

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  4. Curtis and Ryan, thanks for your comments.
    I think that the improving commodity prices will help Canada get out of the recession.
    The undeserved strength of the US dollar comes from risk aversion paradox: The US brought the world into the crisis and has an ailing economy. But money flows into the US, since it’s a “safe haven” in times of trouble. Maybe the trap door will open soon…

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