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Canadian dollar: Weekly outlook

H.S. Borji
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Canadian dollar: Weekly outlook

The Canadian dollar was little changed against its US counterpart Monday ahead of a steady stream of economic data that could help the loonie rebound from its recent lows. Gross domestic product, manufacturing PMI and international trade top this week’s headlines for the Canadian dollar.

The loonie, as the Canadian currency is known, climbed to an intraday high of 0.8978 US. It would subsequently consolidate at 0.8968 US.

The USDCAD pair was trading at 1.1150. The daily chart shows initial support positioned at 1.1102. On the upside, resistance is likely to be met at 1.1182. A breach above this level would expose 1.1216.

The pair advanced more than 1.4 percent last week following five consecutive daily gains. The US dollar index, which tracks the performance of the greenback against a basket of trade partners’ currencies, reached its highest level since 2010.

The loonie has three potential market-moving events this week. The rest of the movements for the USDCAD pair will be determined by a slew of US data releases.

On Tuesday Statistics Canada will release GDP figures for the month of July. The Canadian economy is forecast to grow 0.2 percent in July, following a 0.3 percent increase in June that culminated the strongest quarter since 2011.

Real GDP increased 0.8 percent in the second quarter, which translated into an annualized gain of 3.1 percent, StatsCan reported last month. A broad pickup in activity across all segments of the economy, especially exports and household consumption, led the increase.

Exports surged 4.2 percent in the June quarter, following a 0.2 percent decline in the first three months of the year, as a weaker Canadian currency and a rapidly improving US economy boosted demand for Canadian products and services.

The Bank of Canada has made exports a top priority on the economic agenda. The country’s robust export sector will be relied upon to lift the economy back to full capacity, something not expected to occur before the middle of 2016.

On Wednesday the Royal Bank of Canada – one of the country’s biggest commercial banks – will release its index of national manufacturing activity. The Canadian manufacturing industry in August expanded at its fastest pace in nine months, a sign manufacturers were benefitting from a strengthening US economy.

StatsCan will close out the week with a report on international trade. In July
Canada posted its biggest trade surplus since 2008, as exports rose 1.4 percent to a record high of $45.5 billion. The country’s trade surplus rose to $2.6 billion in July, up from $1.8 billion the previous month.

Stronger manufacturing output and improved trade suggests the Canadian economy is benefiting from a weaker currency. The loonie is expected to fall below 85 US cents next year, according to the latest prediction from the Canadian Imperial Bank of Commerce.

According to CIBC, there’s a risk the Canadian economy “will subsequently decelerate without a weaker exchange rate to lift exports.”

CIBC acknowledged that employment growth continues to disappoint, which could dampen household consumption and homebuilding.

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