cad fundamentals

Canadian Dollar Shows Signs of Life vs US Dollar

Saturday, 01 November 2008 00:46:58 GMT  |  David Rodriguez, Quantitative Analyst

The Canadian Dollar hit fresh four-year lows against the US Dollar, but a significant recovery suggests that the Canadian currency could yet hold its ground against its US namesake. Further unwinding in global commodity markets initially sent the US Dollar/Canadian Dollar exchange rate incredible highs C$1.3015, but a substantial rebound in oil and other key raw materials pulled the USD/CAD to intraweek lows of 1.1897. Outlook for the Canadian currency will subsequently depend on upcoming Canadian Employment numbers and broader developments in global commodity prices.

Fundamental Bias for the Canadian Dollar: Bearish

- Canadian Dollar fails at key technical level, US Dollar could recover recent losses
- Canadian economy contracts through August, Loonie sells off

Forex markets have paid little attention to economic data as of late; movements in broader financial markets have dominated price action in currencies. Yet early signs of improvement in financial market conditions suggest that currency traders will once again watch for any surprises in key economic data. Markets have arguably priced significant deterioration in Canadian economic conditions into the USD/CAD. Thus any surprises in upcoming economic reports could force noteworthy corrections in the domestic currency.

The upcoming Canadian Employment Change report could potentially force major moves in CAD pairs. September’s result unexpectedly showed impressive job growth in the domestic labor market, and traders will wait and see whether the event was simply an aberration. Any signs of deterioration in labor figures will confirm what markets have already priced in; the Canadian economic outlook, much like that for the global economy, remains dim. Thus any positive surprises in the report could force a sharp drop in the USD/CAD. Otherwise, it will be important to watch movements in commodity prices; the Loonie has proved especially sensitive to volatility in oil and other raw materials prices. 

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