The Canadian dollar got very close to parity with the US dollar, as a potential rate hike can wait for a very long time. GDP and employment data 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, the BOC Monetary Policy Report revealed a weaker third-quarter growth rate forecast due to transitory disruptions in energy sector, but a stronger expansion of 2.5% from 2.3%in the fourth quarter. Exports are predicted to increase moderately, however a more substantial growth will occur in the first half of 2014. This overcame the relatively dovish rate statement. All in all Canadian economy is doing well with a strong manufacturing sector and improved domestic demand. BOC Governor Mark Carney will address a parliamentary committee in Ottawa. The markets are waiting for the key GDP release on Wednesday.
Updates: RMPI and IPPI will be released later on Tuesday. The markets are expecting a weaker RMPI, after a big jump of 3.4% last month. The loonie continues to hover close to the parity line, as USD/CAD was trading at 1.0007. GDP was a major disappointment, dropping by 0.1%. The markets had expected a 0.2% gain, and the reading was the worst since April. BOC Governor Mark Carney testified before a Senate Committee in Ottawa. The markets will be eyeing the Employment Change and Unemployment Rate, scheduled for release on Friday. The loonie continues to test the parity level. USD/CAD has edged downwards, as the pair was trading at 0.9996.
- RMPI : Tuesday, 12:30.Canada’s Raw material prices rose 3.4% in August due to the 9.1% increase in the price of mineral fuel. Analysts forecasted a lower figure of 1.5%. On a yearly base prices declined 0.3%. Meanwhile producer price index dropped for the fourth consecutive month in August, down 0.1% from July, amid lower prices for automobiles and other transportation equipment. Analysts expected a 0.1% rise. RMPI is expected to gain 1.4% while IPPI is predicted to climb 0.2%.
- GDP: Wednesday, 12:30.Canada’s economy remained strong in the face of global weakening expanding by 0.2% in July, beating predictions for a 0.1% rise. The main expansion occurred in the manufacturing, wholesale trade and service industries. However, the third quarter is still expected to be weak, with a 1.0% annualized pace, lower than the BOC prediction in July. Growth rate is expected to remain 0.2%.
- Employment data: Friday,12:30. Canada’s job market unexpectedly added 52,000 new jobs in September, the third-largest gain of the year exceeding forecasts of 10,000 rise and following 34,300 rise in August. Canadian job market has the strongest job creation record in the G7, ensuring Canadian economy continues its expansion, contrary to its neighbors. Meanwhile Unemployment rate increased by 0.1% to 7.4%, despite the massive job gain. The reading was higher than the 7.3% predicted by analysts. An addition of 7,800 jobs and a drop to 7.3% in unemployment claims is expected now.
* All times are GMT.
USD/CAD Technical Analysis
USD/C$ traded rather choppily in a higher range and tested high ground at 0.9975, a new line that didn’t appear last week. Parity is very close.
Technical lines, from top to bottom:
We start from higher ground this time. Far in the distance, 1.0372 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. 1.0150 worked as support during June 2012 and is minor now.
1.0066 was key support before parity. It’s strength during July 2012 was clearly seen and it gave a fight before surrendering. Now, it is somewhat weaker. 1.0030 is another line of defense before parity after capping the pair earlier in the year. The move below this line is not confirmed yet.
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. Just below parity, the 0.9975 line is a battleground.
Close by, 0.9950 is now weaker. In March 2012, serve as resistance. It also capped the pair in August 2012, in more than one occasion. 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.
Uptrend Channel Forming
Note how the pair is trending higher within the channel, after it broke out of range in mid October.
I remain bullish on USD/CAD.
Even though the BOC statement was still hawkish, Canada is facing headwinds from the dropping price of oil and from worries about the housing sector. A rebound in the US economy could change the course of the pair, as Canada relies on US demand. But while US growth was encouraging, it still points to slow growth.
- 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.