The Canadian Dollar fought back against the greenback as the bailout of Citigroup and new efforts by the Fed to support consumer lending gave a boost to the carry trade.
Canadian Dollar May Fall As Labor Market Weakens Fundamental Outlook for Canadian Dollar: Bearish
- Canadian September retail sales rose 1.1% against expectations of 0.4%, led by a 1.7% rise in gasoline purchases - US Dollar/Canadian Dollar Technical Outlook Points Towards 1.3025
The Canadian Dollar fought back against the greenback as the bailout of Citigroup and new efforts by the Fed to support consumer lending gave a boost to the carry trade. Canadian fundamental data had also lent “loonie” support as retail sales in September jumped 1.1% giving hope that domestic growth may remain resilient. The USD/CAD would fall to as low as 1.2123 before finding support but the U.S. Thanksgiving Holiday would limit volatility to end the week.
Despite this week’s strength the longer term outlook for the “loonie” remains bearish. The downside risks to growth for the global economy remain high which was evident when China lowered its benchmark rate by over a 100 bps-its largest reduction since the Asian financial crisis. The anticipated drop in demand for raw materials will drag on the Canadian economy and continue to be a weighing factor for its currency. The upcoming economic calendar may start to show evidence of this as employment is expected to fall by 15,000 after a gain of 9,500 in November. Also, the Ivey PMI gauge is expected to drop to 50.5 on the brink of contraction. Despite its main trading partner falling into a recession and commodity prices freefalling the Canadian economy is expected to have experienced 0.8% growth in the third quarter. A better than expected print in GDP could raise hopes that the economy may be more resilient than initially predicted as many expected it to follow the U.S. into recession. Although the backward looking measurement may provide short-term bullish momentum, a weakening labor market and declining global outlook may send it back to re-test the 1.300 price level which has proved as formidable resistance. -JR
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