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USD/CAD: Canadian dollar ticks up amid strong growth figures

H.S. Borji
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The Canadian dollar advanced against its US counterpart Tuesday as upbeat Canadian GDP figures set the stage for a solid final quarter, while US growth continued to outpace expectations in the third quarter.

The loonie, as the Canadian dollar is known, traded above 86 US cents after weakening in the early part of the day. It would subsequently consolidate at 0.8617 US, advancing 0.26 percent.

The USDCAD trade pair consolidated at 1.1602. Initial support is likely found at 1.1580 and resistance at 1.1641.

In economic data, the Canadian economy grew faster than forecast in October, setting the stage for a solid fourth quarter. The value of goods and services produced in Canada increased 0.3 percent in October, following a 0.4 percent advance the month before, Statistics Canada reported today in Ottawa. Economists forecast a smaller gain of 0.1 percent.

The surprise strength came despite plunging oil prices, which are expected to hamstring Canada’s export-driven economy. While not a threat in the macroeconomic sense, declining oil prices could weaken output growth in Canada’s oil and gas sector. Alberta-based oil producers have already cut their spending forecasts for 2015 and are gradually reducing staffing levels to account for slower business.

Mining and oil and gas extraction increased 1.2 percent in October, following a 3.6 percent gain in September, StatsCan reported today. The increase stemmed mainly from non-conventional oil production.

Mining and quarrying – activities that exclude oil and gas extraction – increased 1.5 percent in October, official data showed.

Notable gains were also reported in manufacturing and construction. Growth in these sectors outweighed declines in utilities and agriculture.

Economists now expect Canada’s economy to grow closer to 2.5 percent annually in the fourth quarter, up from an earlier estimate of around 2 percent. However, 2015 will be much more challenging as lower oil prices and waning international demand for natural resources weigh on Canada’s export sector.

Canada’s stronger than forecast GDP report was outshined by revised US growth numbers. The US economy expanded 5 percent annually in the third quarter, the biggest gain in 11 years. That was well above the previous estimate of 3.9 percent and much bigger than the 4.1 percent annual growth rate forecast by economists.

Third quarter growth reflected positive contributions from personal consumption expenditures, nonresidential fixed investment, government spending, exports and residential fixed investment, the Commerce Department said today.

The latest US GDP figures raise the possibility that the Federal Reserve will increase interest rates much sooner than the Bank of Canada, which is expected to weigh on the Canadian dollar. However, a stronger US economy is also expected to lift demand for Canadian goods and services, thereby accelerating Canada’s recovery. A weaker local currency will also make Canadian goods more attractive to US buyers.

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