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Canadian Dollar’s Modest Rebound in Jeopardy

H.S. Borji
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Canadian Dollar’s Modest Rebound in Jeopardy

The Canadian dollar edged higher against its US counterpart Monday, but the rebound is expected to be short-lived as weak fundamentals and escalating geopolitical tensions continue to weigh on the currency.

The loonie, as Canada’s currency is known, advanced 0.19 percent to 0.9131 US.
The USDCAD pair declined 0.19 percent to 1.0952. Initial support is likely found at 1.0940 and resistance at 1.1004.

Canada’s currency was supported by stronger than forecast housing data at the start of the third quarter.

Canadian housing starts in July advanced 0.7 percent to a seasonally adjusted annual rate of 200,098, the Canadian Mortgage and Housing Corporation reported today. Economists forecast a drop to 193,000.

CMHC said the unexpected rise was unlikely to jeopardize the Bank of Canada’s expectations for a soft landing. Higher borrowing rates and rising house prices are expected to weigh on housing activity by the end of the year

The Canadian dollar tumbled to a more than three-month low versus the US dollar last week, having declined more than 2.5 percent over the past month. A resurgent US dollar, combined with a sluggish Canadian recovery, has made the loonie expendable. Currency analysts expect the loonie to fall below 90 US cents by the end of the year as demand for the greenback continues to accelerate.

Adding to the loonie’s recent woes was a disappointing jobs report. Canadian employment levels were little changed in July, as the unemployment rate dipped from 7.1 percent to 7 percent due to declining participation levels.

At the same time, escalating geopolitical tensions in Eastern Europe and the Middle East have made safe haven assets more attractive. Russia last week implemented import bans on Western food products in response to US- and EU-led sanctions.

Meanwhile, US President Barrack Obama last week authorized airstrikes in Iraq to halt the progress of the Islamic State of Iraq and the Levant, which has taken over large swathes of land in the Arab republic. The airstrikes come as several countries prepared to arm Kurdish fighters against the militants, who continue to occupy territory in Iraq and Syria.

Escalating violence in Iraq is expected to further dampen risk sentiment in the global financial markets, which could weigh on the loonie as well as on other commodity currencies.

In commodity news, crude prices were little changed Monday. West Texas Intermediate declined 4 cents to $97.61 a barrel. Brent for September delivery dipped 24 cents to $104.78 a barrel.

Gold futures edged lower, declining $2.10 to $1,308.90 an ounce.

In other trading, the loonie advanced slightly against the British pound, as the GBPCAD declined 0.06 percent to 1.8394. The pair faces initial support at 1.8342 and resistance at 1.8457.

The Office for National Statistics on Wednesday will report on British employment figures for the month of June. The unemployment rate is forecast to decline 0.1 percentage point to 6.4 percent in the three months through June.

The dollar strengthened against the euro, as the EURCAD declined 0.32 percent to 1.4669. The pair is likely supported at 1.4624. Initial resistance is likely found at 1.4772.

The ZEW Institute will report on Eurozone economic sentiment on Tuesday, followed by German and Eurozone inflation figures on Wednesday and Thursday.

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