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USD/CAD: Loonie loses ground ahead of retail sales

H.S. Borji
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The Canadian dollar retraced some of last week’s gains on Monday despite weaker than forecast US services data, as investors looked ahead to retail sales and GDP figures.

The loonie, as the Canadian currency is known, declined 0.3 percent to 88.71 US.

The USDCAD was trading at 1.1272. The pair was likely to test the initial resistance of 1.1284. On the downside, support was likely found at 1.1145.

The Canadian dollar surged on Friday, hitting a three-week high following upbeat inflation figures. Consumer inflation continued to extend above the Bank of Canada’s target, despite falling gas prices. Consumer prices in Canada increased 2.4 percent in the 12 months through October, marking the seventh consecutive month annual inflation was at or above the BOC’s target threshold of 2 percent.

The US dollar was broadly weaker Monday, although the general trend remains positive as central banks in Europe, Japan and China have indicated they are prepared to do more to boost economic growth. Meanwhile, the United States Federal Reserve last month closed the books on its quantitative easing program and is sorting through the economic data to determine an appropriate course for rate adjustment.

The US dollar index, a weighted average of the greenback against a basket of currencies that includes the loonie, declined 0.21 percent to 88.12.

In economic data, the US service economy weakened this month to its lowest level since April, as new business growth continued to slow. Markit Group’s flash estimate of US services declined 1.1 percentage points to 56.1, below estimates.

Last week Markit said the country’s manufacturing sector weakened to a six-month low in November. Both PMI figures suggest the US economy was losing momentum in the fourth quarter. According to Markit chief economist Chris Williamson, the US economy is on pace to grow around 2.5 percent annually in the final three months of the year.

On Tuesday the Commerce Department will post revised third quarter GDP figures. Economists expect the revised estimate, which is based on more complete data, to show the economy actually grew 3.3 percent annually in the July to September period. The Commerce Department said last month the economy expanded 3.5 percent annually.

Canada had no economic data to report on Monday, as investors look ahead to retail sales on Tuesday. Retail sales are forecast to rebound 0.5 percent in September after declining for two consecutive months. Excluding autos, retail receipts are forecast to rise 0.4 percent.

Retail receipts declined 0.3 percent to $42.4 billion in August, as seven of the 11 retail subsectors accounting for three quarters of retail trade posted declines.

Statistics Canada on Friday will post third quarter GDP figures. The economy contracted 0.1 percent in August and flat-lined the month before, suggesting Canada was facing headwinds in the third quarter. The economy is forecast to grow 0.4 percent in September. In annualized terms, GDP is forecast to increase 2.1 percent in the third quarter following a bigger than expected 3.1 percent jump in the July to September period.

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