The Canadian dollar has come off a very important run for fundamentals; yet it seems the nation’s tumble into recession was overshadowed by its neighbor’s steeper decent. Looking ahead to this coming week though, the health of the Canadian economy and its currency will certainly build a presence of its own.
Canadian Dollar Struggles For Advance As Dour Data Matches US Reads
Fundamental Outlook for Canadian Dollar: Bearish
- Though overshadowed by US payrolls, Canadian unemployment hits a three year high - Business activity hits a record low as employment and pricing capabilities vanish
The Canadian dollar has come off a very important run for fundamentals; yet it seems the nation’s tumble into recession was overshadowed by its neighbor’s steeper decent. Looking ahead to this coming week though, the health of the Canadian economy and its currency will certainly build a presence of its own. From a list of notable event risk, the top fundamental indicators next week are somewhat longer-term. First up, the Bank of Canada will release its outlook for business activity (sales) taken through the fourth quarter. This is indicator is relatively volatile from reading to reading; but the general trend is hard to miss over a longer period of time. For some comparison, the gauge was in the teens and twenties back in 2005 (indicating expectations for strong sales going forward) and this past year numbers ranged from -1.96 to 3.96. This reading will further fit into that broader trend to help guide expectations for overall economic growth going forward – though with expectations for a seven-year low -5 reading, the number may be a market-mover in its own right.
Also due from the Canadian central bank at the same time is the Senior Loan Officer Survey. This is a relatively new reading for most Canadian dollar traders; but be assured it is very significant to the fundamental health of the markets and the currency. The survey polls lenders to see what percentage of financial institutions are seeing tightening of lending conditions. Putting this reading into context, Canada was perceived as riding out the financial crisis through October relatively unscathed – meaning there was less of a chance for defaults among major firms or that lending would severely influence growth trends. However, last month, a record (going back to 1999) 50 percent of those surveyed reported tighter credit conditions through the third quarter. For the forth quarter that tally is expected to rise to 55 percent. As credit evaporates from the market (and investors are aware of such a fact) the speculation for growth and the currency will grow increasingly sensitive to general risk trends (just like the pound or US dollar and their leveraged influence to such sentiment). If lending conditions tighten more than expected, it could have serious repercussions in lending activity and investor confidence going forward.
Aside from these two, unusual economic releases, the docket will also provide the ever popular international merchandise trade report. This indicator is a known market mover as it stands as a symbol of the countries relative strength. A surplus with its major trade partners (mostly the US) marks one of the economies major advantages in riding out the global storm – commodities. What’s more, it further stands as strong symbol for many long-term fundamental traders. A surplus (budget, trade and capital flows) has long-been considered a key fundamental valuation tool in currency trading. - JK
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