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USD/CAD: Oil prices, manufacturing shipments lift Canadian dollar

H.S. Borji
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The Canadian dollar advanced sharply against its US counterpart Friday as manufacturing sales rebounded and oil prices stabilized, helping to buoy the commodity-driven currency.

The loonie, as the Canadian currency is known, climbed to an intraday high of 0.8843 US. It would later consolidate at 0.8835 US, advancing 0.5 percent. The loonie is poised to break even this week following volatile price swings over the previous five days.

The USDCAD currency pair was trading at 1.1320. The pair is testing the initial support level of 1.1323, according to the classic pivot point chart. On the upside, initial resistance is likely found at 1.1403.

The Canadian dollar was supported by a bigger than forecast jump in manufacturing sales, a sign of increased demand for factory goods.

Manufacturing shipments increased 2.1 percent to $53 billion in September, following a 3.5 percent drop a month earlier, Statistics Canada reported today in Ottawa. Economists forecast a narrower increase of 1.1 percent.

Compared to September 2013, sales were up 7.3 percent in current dollars, official data showed.

September marked the eighth time in nine months manufacturing sales increased. Gains were led by higher transportation equipment sales. Excluding this category, sales were up just 0.6 percent.

Sales in primary metal increased for the sixth consecutive month at a rate of 5.9 percent. Food sales rose 2.1 percent, official data showed.

New orders rose 4.6 percent to $54 billion in September, stemming from gains in transportation equipment, food and primary metal. Inventories declined 0.5 percent to $70.8 billion, largely as a result of declining stockpiles at petroleum and coal product industries.

Meanwhile, commodity prices rebounded Friday, as oil prices stabilized following sharp declines. Brent for January delivery rose $2.04 to $79.53 a barrel. West Texas Intermediate, the US benchmark, increased $1.10 to $75.31 a barrel.

A prolonged bout of weak oil prices could stymie Canadian growth, according to Bank of Canada Governor Stephen Poloz. In Poloz’s view, declining oil prices could shave a quarter percentage point off Canadian GDP next year. A quarter percentage point is significant given that Canada is expected to grow no more than 2.5 percent next year. According to the BOC, Canada needs to grow at least 2 percent annually to close the output gap, which refers to the difference between GDP and potential GDP.

Precious metals increased across the board Friday. Gold futures advanced $5.60 to $1,167.10 an ounce. Spot gold rose $14.53 to $1,177.08. A bullish US dollar has pressured gold as of late, weakening the incentive to hold on to the yellow metal.

The outlook on the Canadian dollar remains largely negative. Currency analysts eye bigger gains for the USDCAD in the coming year, stemming from expectations about Federal Reserve policy and a shaky Canadian economy. While the BOC has looked to exports to rev up the local economy, the central bank has conceded that the export sector is unlikely to make a full recovery.

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