The Canadian dollar muddled along, enjoying the relative strength of oil, ignoring Europe for a change, but suffering from no hints of QE3 from the US. The end result is a drop in USD/CAD. Canadian rate decision and inflation data are the main events this week. Here is an outlook on the major market-movers and an updated technical analysis for USD/CAD.
Last week Canada’s trade deficit unexpectedly expanded in May to C$793 million from C$623 million in April, amid a rise of imports while exporters remained unchanged due to the European economic crisis. Meantime the housing sector continued to grow with an annualized number of 223,000 new residential constructions in June well above the 203,000 predicted by analysts and New Housing Price Index edged up 0.3% above the 0.2% predicted. Will Canadian economy overcome global market effects?
Updates: Foreign Securities Purchases will be released later on Monday. The markets are expecting a much stronger reading than in June. The loonie is steady, as USD/CAD was trading at 1.0150. The markets are waiting for the BOC interest rate announcement and Rate Statement. The markets are expecting no change in the benchmark interest rate, which currently stands at 1.00%. 10-year government bonds sold at a record low yield of 1.59%. The loonie is unchanged, as USD/CAD was trading at 1.0150. As expected, the BOC maintained its benchmark interest rate at 1.0%. In its Rate Statement, the central bank forecast economic growth at 2.1% in 2012, with inflation remaining around 2%. The Canadian dollar showed little reaction, as USD/CAD was trading at 1.0138. The Canadian dollar climbed following the The BOC Monetary Policy Report on Wednesday. The central bank said that it foresees a gradual increase in interest rates through to 2014. It also forecast improved economic growth due to domestic demand. A press conference followed the release of the report. Wholesales Sales will be released later on Thursday. The markets are expecting a modest increase of 0.2%. The loonie headed closer to the parity line, as USD/CAD was trading at 1.0081. The Canadian dollar has not been this strong since mid-May.
- Foreign Securities Purchases: Monday, 12:30. Foreign investors boosted their acquisitions in April to a net 10.16 billion Canadian dollars following a brief decline if 2.4 billion in the prior month. The rise could be accounted for by the scarceness of triple A rating countries. Foreign investors sold C$941 million of Canadian equities while Canadians sold a net C$2.68 billion of foreign securities. A further increase to 13.51 billion is anticipated.
- Manufacturing Sales: Tuesday, 12:30. Canadian manufacturing sales dropped 0.8% in April to $49.1 billion. The main declines occurred at aerospace product and parts industry and the petroleum and coal product industry, while sales of motor vehicles soared to the highest level since November 2007. A gain of 0.7% is forecasted.
- Rate decision: Tuesday, 13:00. The Bank of Canada kept its overnight rate of 1.0% amid a slightly slower than expected growth rate in the first quarter of 2012. although the overall economic activity is broadly consistent with projected expectations. The European debt crisis and slowing in emerging market economies such as China, Brazil, and India pose downside risks on Canadian future growth prospects. No change is expected, especially after the positive job figures.
- Wholesale Sales: Thursday, 12:30. Sales among businesses increased at the fastest pace in almost a year in April climbing 1.5% after a 0.3% rise in the previous month. The increase was led by a boost of 48.5% in demand for agricultural supplies while personal and household goods dropped 2.2% on lower sales in the pharmaceuticals and pharmacy supplies industry. A rise of 0.2% is predicted.
- Inflation data: Friday, 12:30. Inflation rate decreased unexpectedly in May by 0.1% following a 0.4% increase in April reducing annual inflation from 2.0 percent last time to just 1.2%. Meanwhile Core inflation excluding food and energy prices increased 0.2% after a 0.4% rise in the previous month. Both Core CPI and CPI are expected to drop 0.1% .
* All times are GMT.
USD/CAD Technical Analysis
Dollar/C$ made a small move and eventually tried to conquer the 1.0245 line (mentioned last week). This didn’t work out, and the pair eventually tumbled down, closing at 1.0138.
Technical lines, from top to bottom:
1.0750 was the peak of ranges several times in the past few years, and is a very important line. 1.0660 was last seen in September 2011, but this line was also a long running swing high several times beforehand.
1.0523 was a peak back in November and is minor resistance. 1.0460 capped the pair in June 2012 and also had a minor role in the past. It is now high resistance.
1.0360 was a pivotal line in June 2012 and is now significant resistance. It proved its strength in June 2012. The round number of 1.03 was resistance at the beginning of the year and now returns to this role. It worked perfectly well during June – over and over again, until finally being run through.
1.0245 served as a separator for the move up when the pair rallied in May 2010 and regains some strength now, thanks to capping the pair in July 2012. The round figure of 1.02 was a cushion when the pair dropped in November, and also the 2009 trough. It is now becoming stronger once again after stopping a rise in July.
1.0150 was a swing low in September and worked as resistance several times afterwards. It was challenged in June 2012. and served as a separator in July 2012. This continues to be a key line to watch.
Just above parity, 1.0030 capped the pair twice in March 2012 but is weaker now after working only temporarily in May. The very round number of USD/CAD parity is a clear line of course, and the battle is renewed after the recent climb.
Under parity, we meet another pivotal line at 0.9950. It served as a top border to range trading in March 2012 and later as a line in the middle of the range.
0.99, the round number is now present on the graph after capping the pair in May 2012. 0.9840 provided support for the pair during September and was reduced to a minor line now.
Lower, 0.9725 worked as strong support back at the fall of 2011. The last line for now is 0.9667, which was another strong cushion in the past.
As you can see on the graph, the pair is trading in a downwards channel that began at the beginning of June. Downtrend support is more significant than downtrend resistance. The channel continues to hold.
I remain bearish on USD/CAD.
Canada continues to be relatively strong, and the recent ignoring of European troubles is a very positive sign for the loonie. With oil remaining stable and even moving higher, there are prospects for more loonie strength – more falls for USD/CAD.
- 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.
- For the New Zealand Dollar (kiwi), read the NZD forecast.
- For USD/CAD (loonie), check out the Canadian dollar forecast
- For the Swiss Franc, see the USD/CHF forecast