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Canadian Dollar Holds Ground as Retail Sales Loom

H.S. Borji
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Canadian Dollar Holds Ground as Retail Sales Loom

The Canadian dollar was little changed against its US counterpart Tuesday, as investors awaited Wednesday’s retail sales report amid growing risks of decline for the currency in the coming months.

The loonie, as Canada’s currency is known, rebounded from an intraday low of 0.9294 US to settle at 0.9308 US, declining 0.04 percent.

The USDCAD pair edged slightly higher to 1.0741, climbing 0.03 percent. The pair faces initial support at 1.0723, just below the ten-day exponential moving average, and resistance at 1.0753.

The Canadian dollar has declined nearly 0.7 percent since the start of July as the US dollar rallied in the face of geopolitical concerns and the prospects of a sooner than expected rate hike from the Federal Reserve.

On Wednesday Statistics Canada will release retail sales figures for the month of May. Retail revenues are forecast to have increased 0.6 percent. Excluding automobiles, receipts are forecast to rise 0.3 percent.

Retail sales surged 1.1 percent in April to an all-time high of CAD $41.6 billion, StatsCan reported last month. Retail sales excluding automobiles increased 0.7 percent.

Sales volumes – the component used to calculate real gross domestic product – accelerated 0.8 percent.

Canada’s economy advanced slower than forecast in the first quarter, growing at an annual rate of 1.2 percent. Combined with the 1.2 percent increase in wholesale trade in April, the latest retail sales data suggest the Canadian economy rebounded sharply at the start of the second quarter.

Upbeat Canadian figures have extinguished some of the bearish sentiment surrounding the loonie, which is expected to drop below 90 US cents by the end of the year. The greenback’s recent rally suggests the loonie could weaken well before then.

The US dollar has been propped up by speculation the Federal Reserve may consider boosting interest rates earlier than previously estimated. Fed Chair Janet Yellen said last week that a rate hike could materialize if the labour market continued to recover at a rapid pace.

US nonfarm payrolls increased 288,000 last month, as the unemployment rate dropped to 6.1 percent, a nearly six-year low.

Exchange rate forecasts suggest the USDCAD pair will rally back to 1.10 in 2015, as a deepening US recovery paves the way for a rate hike in the middle of next year. An earlier than estimated rate hike – say in early 2015 – could raise the USDCAD above 1.20, according to the Bank of Montreal. This extreme scenario is unlikely but not out of the question, especially if an expanding Middle East war places more pressure on oil supply.

In other trading, the loonie strengthened against the euro, as the EURCAD dipped 0.39 percent to 1.4466. The pair faces initial support at 1.4460 and resistance at 1.4546, the ten-day moving average.

The Canadian dollar was little changed against the Japanese yen, as the CADJPY climbed 0.05 percent to 94.46. The pair faces initial support at 94.23 and resistance at 94.56.

In Japanese data, the all industry activity index increased 0.6 percent in May, following a 4.6 percent decline the previous month, the Ministry of Economy, Trade and Industry reported today.

The leading economic index – a broad short-term indicator of the Japanese economy – declined from 106.5 to 104.8 in May, according to the Cabinet Office.

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