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USD/CAD: Loonie remains at more than 5-year low despite rebounding building permits

H.S. Borji
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The Canadian dollar declined further against its US counterpart Thursday, as declining oil prices and a dovish Bank of Canada continued to weigh on the commodity currency despite a bigger than expected rebound in building permits.

The loonie, as the Canadian currency is known, has declined for five consecutive days and is currently trading at its lowest level in more than five years. The loonie drifted further below 88 US cents Thursday, eventually consolidating at 0.8786 US.

The USDCAD currency pair advanced 0.24 percent to 1.1416. The pair is likely supported at 1.1351. Resistance is ascending from 1.1448.

In economic data, Canadian building permits rebounded sharply in September, recouping some of August’s drop on higher construction intentions in the province of Ontario.

The total value of building permits issued in Canada rose 12.7 percent to CAD $7.5 billion in September, following a 27.3 percent plunge the month before, Statistics Canada reported today in Ottawa. The growth rate was well above economists’ forecast, which called for a 6 percent advance.

Building permits had reached a record high in July, climbing to CAD $9.15 billion. The August decline was attributed mainly to fewer construction intentions in the residential and non-residential sectors.

Compared to September 2013, building permits were up 10.8 percent, official data showed.

Permits for multi-family dwellings rose 10.8 percent to billion in September, following a 28 percent plunge the month before. The value of building permits for single-family homes increased 2.5 percent to CAD $2.4 billion, following a 2.3 percent drop in August.

All major components of the non-residential sector posted gains in September, official data showed. Permits for institutional buildings rose 87.1 percent to CAD $851 million, following a 75.5 percent decline. Commercial building plans rose 8.7 percent to CAD $1.7 billion. The value of permits for industrial buildings increased 13.4 percent to CAD $496 million.

The surprise upswing in building permits was not enough to lift the Canadian dollar, which has declined 2 percent since October 31. The loonie sunk to fresh lows on Wednesday after Saudi Arabia said it would cut oil prices in the United States in an effort to boost its competitiveness.

Saudi Arabia’s plans to cut oil to $77 a barrel could deliver a serious blow to the export-driven nation of 35 million. Last week Bank of Canada Governor Stephen Poloz said a further decline in oil prices could shave a quarter percentage point off Canadian GDP next year. In the BOC’s view, Canada needs to grow more than 2 percent annually to close the output gap, which is the difference between GDP and potential GDP.

Canada’s economy is expected to remain below capacity for the next two years. The BOC expects the economy to grow 2 percent to 2.5 percent next year, although declining oil prices could diminish that modest outlook.

The BOC maintained its trend-setting interest rate at 1 percent last month. The BOC acknowledged that exports appear to be improving, but growth was less robust than in previous cycles.

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