Canadian_Dollar_May_Threaten_Range_On_Stronger_Employment_body_Picture_5.png, Canadian Dollar May Threaten Range On Stronger Employment

Fundamental Forecast for Gold: Neutral

The Canadian dollar ended the month higher against its U.S. counterpart amid the rebound in risk sentiment and the loonie may appreciate further in the week ahead as the economic docket is expected to encourage an improved outlook for the region. Indeed, the employment report highlights the biggest event risk for the following week, and the development may prop up the Canadian currency as the labor market is anticipated to add another 5K jobs in June.

As the economic recovery gradually gathers pace, there’s a growing argument for the Bank of Canada to lift the benchmark interest rate from 1.00%, and we may see Governor Mark Carney continue to talk up speculation for higher borrowing costs in order to combat the record rise in household indebtedness. However, we will believe that a potential rate hike would be a one-time deal as the sovereign debt crisis continues to drag on global growth, and it seems as though investors are seeing a case for more easing as the BoC aims to encourage a sustainable recovery. According to Credit Suisse overnight index swaps, market participants were calling for higher costs at the beginning of June, but are starting to price a rate cut for the next 12-months, and the shift in the interest rate outlook may gather pace over the near-term amid the slowdown in growth and inflation. In turn, we may see the central bank preserve its wait-and-see approach throughout 2012, and the USDCAD may face range-bound prices in July as market participants weigh the outlook for monetary policy.

As the USDCAD continues to find interim support around the 1.0160 figure, the pair looks poised for a short-term rebound in the coming days, and we may see the sideways price action get carried into July amid the uncertainties surrounding the fundamental outlook for Canada. However, we will be keeping a close eye on the relative strength index as the downward trend in the oscillator continues to take shape, and we may see the exchange rate fall back towards the 78.6% Fibonacci retracement from the 2007 low to the 2009 high around 1.0100-10 should the developments on tap for the following week fuel speculation for a BoC rate hike. - DS