The Canadian dollar traded in a limited range against the greenback and eventually gained a few pips. News about the fiscal cliff impacts the pair. A rate decision, employment data, housing data and Ivey PMI are the main highlights of a very busy week. Here is an outlook on the major market-movers and an updated technical analysis for USD/CAD.
Last week Canada’s Economy remained flat in September despite estimates for a 0.1% growth. On a yearly base, Canada expanded 0.6%, below the 0.8% rise estimates. Business investments and a decline in exports are the main cause for this sluggish performance. Will things improve in the coming months?
Updates: The markets are waiting for the BOC’s interest rate announcement later on Tuesday. The rate has been pegged at 1.0% since 2009, and no change is expected. The central bank will release a Rate Statement at the same time. As expected, the BOC maintained it key interest rate at an even 1.0%. The BOC said it was disappointed with Canada’s growth of only 0.6 percent in Q3, but hinted that it could raise interest rates in 2013. The markets are waiting for two key releases later on Thursday – Building Permits and Ivey PMI. On Friday, Employment Change and the Unemployment Rate will be published. USD/CAD is steady, as the pair was trading at 0.9915.
USD/CAD daily chart with support and resistance lines on it. Click to enlarge:
- Rate decision: Tuesday, 14:00. The Bank of Canada maintained its target for the overnight rate at 1.0% in October. The BOC is content with the modest growth trend in Canadian domestic economy, but is concerned about global uncertainty. Mark Carney will make his first decision after being appointed to the governor of the BOE. Housing activity is expected to slow down after historically high levels in the previous months. Exports are forecasted to pick up gradually but remain weaker than initially predicted. The Bank projects that the economy will grow by 2.2% in 2012, 2.3% in 2013 and 2.4% in 2014. No change in rates is expected.
- Building Permits: Thursday, 13:30. The value of new building permits dropped unexpectedly by 13.2% in September after surging 9.5% in the previous month. The drop was worse than the 2.6% decline forecasted by analysts. The pace of housing construction in Canada will continue to moderate in the last quarter of 2012, while existing home sales will remain steady with a price climb correlated to the inflation. A rise of 2.4% is expected.
- Ivey PMI: Thursday, 15:00. The pace of purchasing among Canadian businesses slowed on October to 58.3 from 60.4 in September, but still above the 50 point line, indicating moderate growth. An increase to 58.6 is forecasted this time.
- Employment data: Friday, 13:30. The Canadian economy added only 1,800 positions in October following September’s 52,100 gain, while unemployment rate remained at 7.4%. Job growth slowed, due to decline in agriculture. Labor market conditions are expected to remain grim in the months ahead. A gain of 4,700 jobs is expected with no change in unemployment claims.
- Labor Productivity: Friday, 13:30. The labor productivity of Canadian businesses dropped 0.4% in the second quarter, following a flat reading in the previous quarter. It was the first decline in a year.
* All times are GMT.
USD/CAD Technical Analysis
Dollar/CAD started the week by trading under 0.9960, which replaces the 0.9950 mentioned last week. It traded in a narrow range above 0.9910 throughout the week. The upcoming week will probably be very different in terms of volatility.
Technical lines, from top to bottom:
Far in the distance, 1.0362 was a peak in June and also beforehand. 1.0250 was a peak back in July, more than once, and is minor now.
1.02 was the trough of 2009 and remains important since then, working in both directions. Another round number, 1.01, was a trough back in July, and switched to resistance afterwards.
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.
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. 0.9950 provided some support for the pair during November and worked as resistance earlier.
0.9910 joins the chart after serving as a bottom border for the pair in November 2012. The strength of this line will be tested. 0.9880 showed that it is a clear separator in October 2012. It also had a role in the past.
0.9817 was a stubborn peak in September and is now significant resistance. It is a weaker line at the moment. Lower, 0.9725 worked as strong support back at the fall of 2011 and showed its strength once again in October 2012.
0.9667, which was another strong cushion in June 2011 is the next line. The round number of 0.96 provided some support back in 2011 and is minor now.
Wide Uptrend Channel Now Weakening
As the chart shows, the pair chewing off uptrend support, but isn’t going anywhere fast. The line is weakening.
I am bullish on USD/CAD.
There are too many signs of weakness from the Canadian economy, including the recent GDP figure. In addition, price of oil is not going anywhere fast.The news is now dominated by the fiscal cliff (fiscal cliff explained here) but also US indicators will weigh in. They could be worse than expected due to distortion by the “Sandy” superstorm. Weak US data means less demand for Canadian goods and this hurts the loonie.
- 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.
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