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USD/CAD: Loonie rebounds amid broad US dollar weakness

H.S. Borji
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The Canadian dollar snapped a four-day losing streak against its US counterpart Tuesday, as demand for the greenback moderated ahead of the Federal Reserve’s December rate announcement, while oil prices continued to slump.

The loonie, as the Canadian dollar is known, climbed back toward 86 US cents, reaching an intraday high of 0.8613 US. The loonie reversed course after a four-day losing streak shaved 1.9 percent off its trade value. Canada’s currency bottomed out at 0.8568 US on Monday, a fresh five-year low.

The USDCAD exchange rate tumbled 0.26 percent to 1.1625. Initial support is likely found at 1.1582 and resistance at 1.1694.

In economic data, Canadian manufacturing sales declined more than forecast in October amid lower production of aerospace products. Manufacturing shipments declined for only the second time this year, falling 0.6 percent to $52.7 billion, Statistics Canada reported today in Ottawa. The October decline followed a 2.2 percent gain the previous month.

Overall manufacturing activity remained elevated in October, as 15 of the 21 industries accounting for more than 60 percent of total manufacturing reported higher sales.

Meanwhile, manufacturing conditions in the United States depreciated further in December, as production and new orders grew at the slowest rate in 11 months. Markit Group’s gauge of US manufacturing activity declined to 53.7 from 54.8.

PMI figures over the last two months somewhat contradict official government data pointing to sustained growth in factory activity. US industrial production surged 1.3 percent in November, thanks to a 1.1 percent gain in manufacturing.

The commodity-sensitive Canadian dollar received some assistance earlier in the day when oil prices posted a slight rebound. West Texas Intermediate for January delivery posted a slight gain of 28 cents, rising to $56.19 a barrel. Brent crude, the global benchmark, declined $1.05 to $60.01 a barrel.

Oil prices have crashed since the summer, as the major oil producing powers have vowed to maintain surplus production levels despite falling demand. On Monday United Arab Emirates energy minister Suhail Al-Mazrouei said the Organization of the Petroleum Exporting Countries would maintain current production levels at 30 million barrels a day even if oil prices fell below $40 a barrel.

While North American producers have remained defiant, a prolonged bout of rock-bottom crude prices could squeeze many out of the market. This is especially the case for Alberta’s oil sands producers who face bigger cost burdens.

On Monday Alberta-based Western Energy Services slashed its 2015 capital spending budget to $64 million from $77.5 million, a sign producers were already feeling the pinch of declining prices. More than $150 billion worth of oil and gas exploration projects around the world are likely to be put on hold next year, according to a December 4 article by the Financial Post.

Plunging crude prices could give the Bank of Canada more ammunition to keep interest rates at 1 percent. BOC Governor Stephen Poloz has warned that declining oil prices could weigh on Canadian growth and job creation. Testifying before the Senate banking committee in October, Poloz warned that oil prices below $90 US a barrel could significantly impact Canadian prospects. With prices expected to fall below $50 a barrel, Canada could face serious challenges in 2015 if consumer spending doesn’t step in to fill the void of lost oil revenue.

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