cad fundamentals

Canadian Dollar May Benefit From Improving Global Outlook

Saturday, 08 November 2008 03:12:16 GMT  |  John Rivera, Currency Analyst

The Canadian Dollar reached its highest level against the dollar since October 14 as the outlook for the global economy has started to improve which has been supportive for commodities. A brief bout of bullish dollar momentum would see the USD/CAD give back most of its gains, before a “loonie” rally late in the week.

Canadian Dollar May Benefit From Improving Global Outlook

Fundamental Outlook for Canadian Dollar: Bearish

-Ivey PMI Fell to 52.2 from 61.0 and below estimates of 55.0, the employment component fell to a three month low of 48.5 
-The Canadian economy unexpectedly added 9,500 jobs in October, however the majority of the gain was generated by the election

The Canadian Dollar reached its highest level against the dollar since October 14 as the outlook for the global economy has started to improve which has been supportive for commodities. A brief bout of bullish dollar momentum would see the USD/CAD give back most of its gains, before a “loonie” rally late in the week. The Canadian economy saw weak fundamental data as the Ivey PMI reading fell to 52.2 from 55.0 led by a drop in its employment component. Although, the following labor report surprised with a increase of 9,500 jobs, the bulk of the new hires were temporary for the election. The goods-producing sector saw a loss of 26,800 employees and with the election ending and the global slowdown, next month could see significant losses.

The continued efforts of world leaders to stem the financial crisis and avert a global recession has started to improve the outlook for growth which has begun to creep into commodity prices. The USDCAD has started begun to trade in a more traditional manner as opposed to the one directional moves that we saw in October. Yet, there still remains significant volatility in the pair compared to its historic nature. Therefore, it will present opportunities for profits and equal risks for losses, so traders must caution in the current environment. 1.1500 has held as psychological support and is an important level to watch, another test is possible and may be an opportunity to go long the pair.

The upcoming Canadian economic calendar will present very little in event risk given the current environment. However, the data is expected to show that the Canadian economy continues to weaken which may ultimately be a weighing factor on the “loonie”. Housing starts are expected to fall fro the first time in three months as the frozen credit markets made it difficult for borrowers to secure funding and the expected decrease in demand discourage builders. The International merchandise trade balance is expected to have contracted to 5.3 billion from 5.8 billion as slumping demand from the U.S. is weighing on exports. - JR
 
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