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Canadian Dollar: Weekly Outlook

H.S. Borji
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Canadian Dollar: Weekly Outlook

The Canadian dollar was consolidating at multi-week lows against its US counterpart Monday, ahead of an active week that features Canadian monetary policy and US economic data.

The loonie, as Canada’s currency is called, was trading at 0.9316 US, little changed from its previous close.

The USDCAD pair was trading at 1.0733. Initial support is likely found at 1.0661 and resistance at 1.0773.

The loonie fell sharply Friday after Statistics Canada said employment levels unexpectedly declined in June, as layoffs in part-time work outpaced a steady increase in full-time employment.

Canadian employment declined 9,400 last month, following a gain of 25,800 the previous month. Economists forecast a second consecutive month of gains at a pace of 20,000.

The unemployment rate edged up from 7 percent to 7.1 percent. The participation rate was steady at 66.1 percent.

Friday’s report likely gives the Bank of Canada more justification to maintain its dovish stance toward monetary policy, which has come despite strong advances in consumer inflation levels. Canadian consumer prices advanced at an annual rate of 2.3 percent in May, the largest gain in more than two years. The BOC targets inflation at 2 percent.

Canada’s economic calendar heats up Wednesday when the Bank of Canada issues its July rate statement. The central bank is expected to hold interest rates at 1 percent, unchanged since September 2010.

The BOC will also release its quarterly monetary policy report, which could impact the loonie’s volatility.

Wednesday also sees the release of manufacturing shipments for the month of May courtesy of Statistics Canada. Manufacturing shipments are forecast to have rebounded sharply in May at a rate of 1 percent.

StatsCan will close out the week with consumer inflation and wholesale sales figures. Consumer inflation is forecast to have increased 0.1 percent in June, following a gain of 0.5 percent the previous month.

So-called core inflation, which strips away volatile elements such as food and energy, is forecast to have declined 0.2 percent following a gain of 0.5 percent the previous month.

The United States has several market moving events scheduled for the week, including retail sales, industrial production and housing starts.

On Tuesday Federal Reserve Chair Janet Yellen will also testify before Congress about monetary policy and the current state of the economy.

Neither Canada nor the United States had any major news items scheduled for Monday.

In other trading, the Canadian dollar advanced against the yen amid disappointing Japanese industrial production figures. Japanese industrial production declined 0.7 percent in May. Year-on-year, industrial production was up 1 percent, following an annualized gain of 3.8 percent the previous month.

The CADJPY climbed 0.36 percent to 94.68. Initial support is likely found at 93.99 and resistance at 95.01.

The loonie tumbled against the euro after the European Commission posted stronger than forecast industrial production figures. Eurozone industrial production declined 1.1 percent in May, compared to forecasts calling for a 1.2 percent decline. Year-on-year, industrial production was up 0.5 percent.

The EURCAD advanced 0.07 percent to 1.4617. The pair is supported at 1.4510. Initial resistance is likely found at 1.4659.

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