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Canadian Dollar Falls to Lowest Level since March as Outlook Dims

H.S. Borji
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Canadian Dollar Falls to Lowest Level since March as Outlook Dims

The Canadian dollar fell further below 90 US cents on Friday, as the US dollar paced for its eleventh consecutive weekly gain against a basket of major currencies.

The loonie, as the Canadian dollar is known, declined 0.33 percent to 0.8967 US, the lowest level since the end of March. Canada’s currency is on pace for a weekly decline of 1.8 percent, as a dearth of Canadian data kept the markets focused on US recovery and its implications on monetary policy.

The USDCAD climbed to an intraday high of 1.1154. The pair would subsequently consolidate at 1.1146. The pair surpassed the initial resistance at 1.1141 and looks poised to test the 1.1173 pivot point. On the downside, initial support is likely found at 1.1066.

Canada had no economic data to report Friday. The markets were disappointed to learn on Tuesday that Canadian retail sales declined in July for the first time in six months, a sign overstretched consumers were beginning to feel the burden of record debt levels.

Canadian retail revenues tumbled 0.1 percent to $42.5 billion, easing off June’s record high.

Excluding the volatile automotive category, retail sales declined 0.6 percent, official data showed.

Canada’s economic calendar heats up in the latter half of next week with reports on GDP, manufacturing and international trade.

Developments south of the border were responsible for virtually all of the Canadian dollar’s declines this week. US data were relatively mixed this week, but a surge in new home sales and an upwardly revised GDP report kept the greenback supported. The US dollar index reached 85.00 this week for the first time since 2010.

On Friday the Commerce Department said the US economy expanded at an annual rate of 4.6 percent in the second quarter, following an upwardly revised estimate of 4.2 percent last month. According to analysts, the economy is poised to grow more than 3 percent annually in the third quarter.

Markit Group chief economist Chris Williamson, who commented earlier this week on the strong performance of the US services sector, said the economy is on pace to grow 3.5 percent in the September quarter.

Analysts continue to warn the Canadian dollar will remain under pressure for the rest of the year, as the USDCAD continues to consolidate higher. Although the Bank of Canada claims to be taking a hands off approach when it comes to the local currency, a weaker exchange rate is a welcomed sign for a central bank looking to exports to drive economic recovery.

Canada’s GDP accelerated at an annual rate of 3.1 percent in the second quarter, thanks to a large increase in exports.

Canada’s recovery efforts are tied directly to the US economy, as three-quarters of the country’s exports flow to its southern neighbour. A stronger US economy and a weaker loonie are expected to make Canadian exports more competitive in the short-run.

The BOC, which left its rate target unchanged at 1 percent in September, expects the Canadian economy to operate below capacity until the middle of 2016.

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