Never miss a story from Renee Mu

Subscribe to receive daily updates on publications
Please enter valid First Name
Please fill out this field.
Please enter valid Last Name
Please fill out this field.
Please enter valid email
Please fill out this field.
Please select a country

I’d like to receive information from DailyFX and IG about trading opportunities and their products and services via email.

Please fill out this field.

Your Forecast Is Headed to Your Inbox

But don't just read our analysis - put it to the rest. Your forecast comes with a free demo account from our provider, IG, so you can try out trading with zero risk.

Your demo is preloaded with £10,000 virtual funds, which you can use to trade over 10,000 live global markets.

We'll email you login details shortly.

Learn More about Your Demo

You are subscribed to Renee Mu

You can manage your subscriptions by following the link in the footer of each email you will receive

An error occurred submitting your form.
Please try again later.

Canadian_Dollar_At_Risk_Ahead_of_Bank_of_Canada_Employment_Report_body_Picture_1.png, Canadian Dollar At Risk Ahead of Bank of Canada, Employment Report

Canadian Dollar At Risk Ahead of Bank of Canada, Employment Report

Fundamental Forecast for Canadian Dollar: Bearish

The Canadian dollar weakened to its lowest level in eight months amid concerns on the slowing growth in the real Canadian economy. According to a report released by Statistics Canada, domestic GDP rose 0.6 percent in fourth quarter, the lowest since second quarter of 2011. On a monthly basis, GDP fell by 0.2 percent in December following a gain of 0.3 percent in previous month. Within the short-term, more elements of the downside risks have materialized than the upside risks, as there is little momentum to drive Canadian economic growth through the foreseeable future.

Looking forward to next week, the Bank of Canada rate decision will likely be the top headline for the Loonie. Although the central bank ultimately needs to withdraw some monetary stimulus, the prospect for rate increase is “less imminent” according to Governor Carney. His remarks could reinforce the increasing popular view that the BOC will leave interest rates unchanged until at least early next year. Thus, the Canadian dollar looks less likely to appreciate as Canada’s benchmark rate remains locked at a record-low of 1 percent.

The pace of economic growth in Canada so far is disappointing as housing starts, factory shipments, exports and retail sales all dropped sharply in December and January. Canada Finance Minister Flaherty said today that he “was not surprised by weak Canada GDP report” and “expected economists to lower growth forecasts” in the near term. On the labor market, the unemployment report due next Friday is expected to show unemployment climbed to 7.1 percent, which adds more negative signs to Canada’s outlook and could push the Loonie to new lows.

A stalemate over the US budget negotiations and the so-called “Sequester” may likewise drag on its northern neighbor as the US remains Canada’s largest trade partner. A total of $85 billion budget cuts will take effect at midnight Friday, which could cause ripple effects throughout the US economy and will lead to 750 thousand jobs lost according to US President Obama. Canada’s export to US can be further damaged if the sequestration is dealt with in a timely manner. This will make the recovery in Canada market much harder. A weaker currency, however, is helpful for domestic firms to gain a competitive advantage in export markets. We doubt that the Bank of Canada will show any concern over the suddenly fast-falling Canadian Dollar exchange rate versus its US namesake. - RM