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Canadian Dollar Tumbles ahead of Employment Data

H.S. Borji
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Canadian Dollar Tumbles ahead of Employment Data

The Canadian dollar declined against its US counterpart Thursday, as new house prices rose less than forecast and the markets shifted their attention to Friday’s employment report.

The loonie, as Canada’s currency is called, declined 0.18 percent to 0.9369 US, following two consecutive days of gains. The intraday low was 0.9367 and the high was 0.9393.

The USDCAD pair advanced 0.17 percent to 1.0673. The pair is likely supported at 1.0633. Initial resistance is likely found at 1.0677.

The North American currency pair has been trading below the 200 day simple moving average for nearly three weeks amid stronger Canadian data and a weaker US dollar.

The loonie has approached 2014 highs several times over that period, but speculators caution not to expect the recent strength to continue for the rest of the year. Canada’s currency is expected to weaken considerably by the end of the year as the US Federal Reserve outlines its plans to begin raising interest rates.

The minutes of the June Federal Open Market Committee Policy meetings revealed Wednesday that the central bank is planning to end its quantitative easing program by October. The first rate hike, however, isn’t expected until mid-2015.

In economic data, Canadian new house prices rose less than forecast in May, Statistics Canada reported today in Ottawa. The new house price index, which measures changes in contractors’ selling prices of new residential homes, advanced 0.1 percent in May, following a 0.2 percent gain the previous month.
Economists forecast a gain of 0.2 percent.

Compared to May 2013, new house prices were up 1.5 percent.

Statistics Canada will close out the week with June employment data. Economists say the Canadian economy probably added more than 20,000 jobs in June for the second consecutive month, a sign the labour market was stabilizing after a prolonged period of volatility.

Employment in Canada rose by 25,800 in May.

The unemployment rate is forecast to remain at 7 percent. The participation rate – the percentage of the working-age population working or actively seeking employment – is also forecast to remain steady at 66.1 percent.

Price developments over the last several weeks prove the Canadian dollar is highly sensitive to economic data. The loonie shot up last month after StatsCan said consumer inflation rose to a more than two-year high and retail sales reached an 11-month high.

The loonie’s recent strength probably creates fresh headaches for the Bank of Canada, which is relying on exports to drive the next stage of recovery. A stronger currency has the potential to weigh on the country’s export sector and suppress inflation.

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