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USD/CAD: Canadian dollar retraces weekly gains as GDP disappoints

H.S. Borji
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USD/CAD: Canadian dollar retraces weekly gains as GDP disappoints

The Canadian dollar declined sharply against its US counterpart Friday, as the Canadian economy contracted for the first time this year, while US manufacturing activity and consumer confidence rose faster than forecast.

The loonie, as the Canadian dollar is known, declined 0.89 percent to 0.8855 US, erasing weekly gains.

The USDCAD pair climbed 100 pips to reach 1.1297, its highest level since October 21. The pair surpassed three intraday resistances along the way. Initial support is likely supported at 1.1157.

The US dollar was higher across the board. The US dollar index, a weighted average of the greenback against a basket of currencies including the Canadian dollar, surged more than 1 percent to 87.02.

In economic data, Canada’s economy contracted unexpectedly in August for the first time this year, as a weakening energy sector offset broad gains in the service economy.

Canada’s economy expanded 3.1 percent annually in the second quarter, but has faced headwinds maintaining its robust growth pace in the third quarter.

Canada’s real gross domestic product declined 0.1 percent in August, following no change a month earlier, Statistics Canada reported today.

Goods production, which includes mining, agriculture, manufacturing and utilities, declined 1 percent.

Service production, which account for more than two-thirds of the economy, rose 0.2 percent, led by the public sector, wholesale trade and finance and insurance.

In US data, business conditions in the Midwest surged in October, as new orders rose to the highest level in a year.

The Chicago purchasing managers’ index, which measures business conditions in Illinois, Indiana and Michigan, rose 5.7 points to 66.2, zipping by estimates calling for 60.0.

Stronger demand and solid output growth encouraged companies to add workers at a faster pace this month, PMI data showed. Employment rose to the highest level since November 2013, supporting expectations for another strong month of job creation.

The Labor Department is expected to announce next week the creation of more than 200,000 jobs in October.

US consumer sentiment surged in October to its highest level since 2007 on stronger appraisals of the economy and personal finances.
The final reading of the Thomson Reuters/University of Michigan consumer sentiment index was 86.9 in October, up from 84.6 the month before.

Separately, personal income and outlays data were mixed in September, the Commerce Department reported today.

Personal income creased 0.2 percent, or $22.7 billion in September, following a 0.3 percent gain in August. Economists forecast an increase of 0.3 percent.

Consumer spending, which accounts for two thirds of economic activity, declined in September for the first time in eight months, suggesting the US economy was losing some momentum at the end of the third quarter. Consumer spending declined 0.2 percent following an unrevised gain of 0.5 percent in August, official data showed.

A decline in consumer spending could weigh on overall output growth in the final three months of 2014. The US economy expanded faster than forecast in the third quarter, the Commerce Department reported on Thursday. US GDP accelerated 3.5 percent over year-ago levels.

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