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USD/CAD: Loonie rebounds ahead of retail sales, BOC

H.S. Borji
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The Canadian dollar rebounded against its US counterpart Tuesday, as mixed Chinese data weighed on the global economic outlook.

The loonie, as the Canadian currency is known, advanced 0.5 percent to 0.8904 US, rebounding from an intraday low of 0.8853 US.

The USDCAD pair consolidated at 1.1228. The pair is now testing the 1.1213 support level. On the upside, resistance is ascending from 1.1303.

In economic news, China produced mixed growth data on Tuesday, suggesting Beijing may have to introduce further accommodative measures to keep the economy on track. Chinese gross domestic product accelerated at an annual rate of 7.3 percent in the third quarter, the slowest rate of growth since the first quarter of 2009. However, the growth rate was slightly above forecasts calling for 7.2 percent.

Separately, Chinese industrial production rebounded sharply in September, growing at an annual rate of 8 percent. Growth had slowed to 6.9 percent in August, a six-year low.

In US data, existing home sales rose faster than forecast in September, boosting optimism the housing recovery was gaining traction.

US existing home sales increased 2.4 percent in September to a seasonally adjusted annual rate of 5.17 million, the National Association of Realtors reported today. Economists forecast a narrower gain to 5.1 million.

Canada had no economic data to report on Tuesday, as the markets shifted their attention to retail sales and monetary policy.

Canadian retail sales were flat in August, according to a median estimate of economists. Retail receipts had declined in July for the first time in seven months on lower sales at general merchandise stores. Sales dropped 0.1 percent to $42.5 billion, Statistics Canada reported last month.

A decline in consumer spending has raised concerns Canadians are beginning to feel the pinch of rising debt loads and lower savings. A strong consumer segment has kept the Canadian economy elevated since the global recession, helping the world’s eleventh largest economy outperform its major peers during that period.

Consumer spending could be a key talking point for the Bank of Canada on Wednesday, which will coalesce in Ottawa to discuss monetary policy and set the interest rate. The BOC is widely expected to leave its rate target at 1 percent, unchanged since September 2010.

BOC officials are expected to remain cautious about the path toward policy normalization, as the Canadian economy continues to operate below capacity. Central bankers have been keen to quell any speculation about higher interest rates in the short-term, despite rising inflation and record-high exports.

Consumer inflation has trended at or above the BOC’s target of 2 percent since the spring. According to BOC Governor Stephen Poloz, higher inflation is the result of temporary factors, such as higher energy costs.

Meanwhile, Canadian exports surged 4.2 percent in the second quarter, helping the broader economy grow 3.1 percent year-on-year. The BOC acknowledged the rise in exports, but said more consistency was needed to keep the economy on the right track.

Canada is expected to be among the leaders in the G7 over the next year-and-a-half, according to revised growth estimates from the International Monetary Fund. Canada’s GDP is forecast to grow 2.3 percent this year. Growth is expected to average 2.4 percent in all of 2015. By contrast, the US economy is expected to grow 2.2 percent this year and 3.1 percent next year.

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