cad fundamentals

Canadian Dollar Outlook Against US Dollar Muted on Crude Oil Tumbles

Saturday, 20 December 2008 00:43:10 GMT  |  David Rodriguez, Quantitative Analyst

Continued tumbles in crude oil prices made the Canadian dollar one of the worst G10 performers through the past week of trade, but an outright rout in the US Dollar meant that the USD/CAD actually finished lower through Friday’s close. Outlook remains somewhat muted for the Loonie, however, as wave after wave of fundamental data points to further economic deterioration in the North American economy. Above-forecast Canadian Consumer Price Index data dampened expectations for future Bank of Canada interest rate cuts, but the news had little effect on the Canadian Dollar exchange rate. Trader focus subsequently shifts to the coming week’s important economic data, but a holiday-shortened week of trade makes it difficult to forecast what to expect out of major currency pairs.

Fundamental Outlook for Canadian Dollar: Bearish

-   Canada plans stimulus plan to boost economy
-   DailyFX Analysts express their views on the Canadian Dollar

Year-end trading in the Canadian dollar will either be completely uneventful or incredibly volatile. Thinned trading desks at major global banks means that forex market conditions will be especially illiquid. Such conditions can exacerbate price moves or simply indicate that few traders are interested in holding positions. It will be subsequently be important to take illiquidity into account when watching reactions to Thursday’s Canadian Gross Domestic Product report. Economists predict that Canada’s economy fell into economic recession through the fourth quarter of 2008, and October’s result is forecast to show a GDP decline of 0.3 percent. Barring a truly sensational surprise, outlook for Canadian economic growth will likely remain bearish. The highly export-dependent economy remains highly susceptible to a drop in global demand—especially as natural resources comprise 65 percent of all exports. Thus traders are somewhat unlikely to react strongly to the release.

Watch for any other unexpected developments out of either Canada or the US—especially as conditions remain ripe for fast-paced illiquid moves.  - DR

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