Canadian Dollar Will Find Direction From Employment Data

Bank of Canada Governor Carney repeated this week that policy makers have “options” to slow the “loonie’s” appreciation, if its strength makes hitting their inflation target of 2.0% prohibitive. Market participants shouldn’t expect any action over the near-term as the Governor would go on to say that "history has shown intervention in and of itself without backing policy moves...seldom is effective over the longer term." The central bank leader recommitted to keep the bank’s key interest rate at 0.25% through June 2010, unless inflation threatens their 2% target. Policy makers would point to greenback weakness as the culprit for the local dollar’s strength and continues to view the current trend as a negative for the Canadian economy. The U.S. is Canada’s main trading partner and demand for exports will continue to be impacted as the exchange rates grows in the “loonie’s” favor.

This week’s economic calendar will present additional event risk and further insights into the Canadian economy. Just like the past week we will have to wait till the end of the period with the Ivey PMI on Thursday and the employment report on Friday. Manufacturing activity is forecasted to have slowed to 59.5 from 51.7 but remain in expansion territory for a fifth straight month. Meanwhile, economists are forecasting that the Canadian economy added another 10,000 jobs in October following the unexpected gain of 30,600 the month prior. The surprise job growth sparked a “loonie” rally that would send the USD/CAD to a fresh yearly low of 1.0205.  Continued job creation may reignite bullish sentiment for the com-dollar helping erase recent losses. However, traders must also take into consideration the U.S> NFP report in determining price direction. The USD/CAD found trendline resistance at 1.0836 which could set the pair up for a reversal to start the week. However, a break above the level exposes potential to 1.1100-9/2 high. -JR