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Canadian Dollar Plummets as Signs of Vulnerability Emerge

H.S. Borji
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Canadian Dollar Plummets as Signs of Vulnerability Emerge

The Canadian dollar declined sharply against its US counterpart Tuesday, as sentiment continued to shift in the greenback’s favour amid a steady stream of economic data.

The loonie, as Canada’s currency is known, tumbled 0.4 percent to 0.9224 US, its lowest level since June 22. The loonie has tumbled 1.3 percent against the US dollar this month, as the markets became increasingly bullish about US recovery.

The USDCAD pair advanced 0.45 percent to 1.0847. Initial support is likely found at 1.0785, the 50-day exponential moving average. The pair overcame resistance at the 200-day moving average of 1.0833.

The recent sell-off began Friday when the loonie tumbled more than half a percent. Speculators suggest Canada’s currency is vulnerable to further losses as investors re-evaluate their long positions.

The latest report from the US Commodity and Futures Trading Commissions said the Canadian dollar’s net long position rose to $1.9 billion last week, the currency’s strongest showing since early last year.

The Canadian dollar declined against most of its major rivals Tuesday.

The loonie tumbled to an eight-day low against the euro, as the EURCAD advanced 0.27 percent to 1.4552. Initial support is likely found at 1.4500 and resistance at 1.4566.

The loonie fell from a four-day high against the Japanese yen, as the CADJPY tumbled 0.24 percent to 94.08. The pair faces initial support at 93.96 and resistance at 94.44.

The British pound advanced against the Canadian dollar, as the GBPCAD climbed 0.21 percent to 1.8378. Initial support is likely found at 1.8323 and resistance at 1.8399.

The loonie tumbled against its commodity-driven rival, the Australian dollar, as the AUDCAD advanced 0.15 percent to 1.0173. Initial support is likely found at 1.0139 and resistance at 1.0180.

The loonie’s recent skid comes amid growing efforts from the Bank of Canada to talk down the local currency. The BOC is looking to the export sector to drive the next phase of Canada’s recovery and is relying on a weaker currency to boost demand for Canadian goods. At the last rate meetings the BOC lowered its outlook on growth and said the economy won’t return to full capacity until mid-2016.

The Bank of Canada has kept its overnight rate at 1 percent since September 2010. The recent pick-up in inflation probably means the central bank won’t reduce the cost of borrowing any time soon, something it has vowed to consider should the economy continue to stagnate.

Canada had no economic data to report in the early part of the week.

On Wednesday Canada’s federal statistics agency will report on industrial product prices and raw material prices for the month of June.

On Thursday the government will report on May gross domestic product. Canada’s economy is forecast to have expanded 0.3 percent in May, following a meagre 0.1 percent advance the previous month.

Canada’s economy expanded at an annual rate of 1.2 percent in the first quarter, as severe weather weighed on household consumption and business spending. In real terms, Canada’s GDP increased just 0.3 percent in the first three months of the year.

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