USD/CAD made another move higher, and gained for a second week in a row. Inflation data and Retail sales are the highlights of this week. Here is an outlook on the major market-movers and an updated technical analysis for USD/CAD.
Last week, Bank of Canada Governor Mark Carney announced he will step down on June 1 declaring he will assist the next governor in the short transition period. In regard to Japan’s monetary policy Carney remarked that Canadian economy would be particularly vulnerable to a widespread currency war, since it does not have the power to manipulate currency markets. Canada is among the 4 losers in currency wars. By this both Carney and Finance Minister Jim Flaherty signed a statement, which vows to set monetary policy to address domestic concerns rather than international ones. Will the Canadian economy be affected by Japan’s aggressive monetary policy?
Updates: Tuesday’s economic releases looked awful. Foreign Securities Purchases declined by -1.92 billion dollars. This was nowhere near the estimate of 7.21 billion. Wholesale Sales hit a month-low, dropping 0.9%. The estimate stood at -0.4%. The loonie continues to lose ground against the US dollar, as USD/CAD was trading at 1.0131. The BOC Review, a quarterly report, will be released on Thursday. There are two key releases on Friday, Core CPI and Core Retail Sales. USD/CAD is steady, as the pair was trading at 1.0185.
- Foreign Securities Purchases: Tuesday, 13:30. A sharp drop in foreign investment in Canadian securities was registered in November reaching C$5.62 billion after C$12.67 billion reading in the previous month amid a cut back in purchases of debt. A rise to C$7.2 billion is expected now.
- Wholesale Sales: Tuesday, 13:30. Canadian wholesale sales edged up for a second month in November, rising by 0.7% to C$49.6 billion, following a revised 0.8% gain in October. The reading topped market predictions indicating Canadian economy is strengthening. Five of the seven major categories registered gains.
- BOC Review: Thursday, 15:30. A quarterly publication including articles on to the Canadian economy and the central banking.
- Inflation data: Friday, 13:30. Consumer prices declined sharply by 0.6% in December following 0.2% drop in November. The main declines occurred in clothing and footwear, transportation and household operations. In recent months consumer prices kept below the BOC’s predictions. Core CPI also declined by 0.6% in line with the recent trend.
- Retail sales: Friday, 13:30. Canadian retail sales surged 0.2% in November to a record high of C$39.4 billion despite predictions of a flat rate. The reading followed a 0.5% increase in October. Canadian shoppers adopted the U.S.-style “Black Friday” events in November to lure Canadians into spending at home rather than across the border in U.S. malls. Despite this encouraging figure, the Bank of Canada is likely to revise down its fourth-quarter economic forecast from an early estimate of 2.5%, annualized. Meanwhile Core sales, excluding the auto sector, declined 0.3% in the month following a 0.2% gain in October.
* All times are GMT.
USD/CAD Technical Analysis
Dollar/CAD started the week with a gradual climb higher and peaked under the 1.01 line (mentioned last week). It then fell back down but met support at parity. All in all, USD/CAD is becoming a much more technically friendly pair.
Technical lines, from top to bottom:
1.0250 was a peak before the pair moved below parity a long time ago. 1.02 was the trough of 2009 and remains important since then, working in both directions. It is the next hurdle if USD/CAD breaks higher.
Another round number, 1.01, was a trough back in July, and switched to resistance afterwards. The line proved its strength several times in 2013. 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, but has begun weakening.
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 and also in 2013. It is a clear separator. 0.9950 provided some support for the pair during November and worked as resistance earlier. Its stubborn behavior as resistance in December proved its strength.
0.9910 remains the chart after serving as a bottom border for the pair in November 2012. It already managed to work as weak resistance in December 2012. 0.9880 showed that it is a clear separator in October 2012. It also had a role in the past. This line switches roles once again.
0.9817 was a stubborn peak in September and is now significant support. As seen in December 2012, this line worked as a cushion. It worked very nicely in January 2013. 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.
I am bullish on USD/CAD.
After Canada suffered from a drop in both jobs and housing starts we certainly have reasons to be wary. In addition, China’s intentions to buy more Russian oil and the increase in US oil production also weigh on Canada’s oil exports and the C$.
- 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.