Week Marked by Optimism for Canadian Currency

The Canadian dollar declined last week. One of the major reasons for the underperformance was the economic tightening measures in China. The ensued speculation about China’s plans to cool its economy weakened the growth-related currencies and caused the decline of the prices for crude oil, the biggest Canada’s export. The concerns about the actions of the Chinese government will cause pressure on the Canadian currency.

Still the outlook for the loonie this week is rather positive. The fundamental reports expected to support the currency and the overall sentiment about the economic strength of Canada as well as the US, the largest trading partner of Canada. The government report expected to show that the inflation retained the same 0.2 percent rate of growth in October as it was in September. The report on the consumer prices is even more interesting if we would consider that the high inflation may be followed by the interest rates hike. In August the retail sales rose 0.5 percent, the fastest pace in six month. The experts estimated that the pace of the growth increased to 0.8 percent in September.

Last week was also supportive to the Canadian currency. The wholesale sales rose 0.4 percent in September, while the analysts predicted only the 0.1 percent growth. The investors were attracted by the Canadian markets, resulting in the strong investment of C$12.3 billion in the Canadian securities in September by the foreign investors. The leading indicators rose 0.2 percent in October after it dropped 0.2 percent in September. This is even more important as the leading indicators are considered to preface the major development in the economy. The stabilization of the Irish sovereign-debt crisis should also help the loonie by increasing the risk appetite.

Saying all that, we should remember that the Canadian dollar is driven by equities and commodities, so any major change to their performance may influence the behavior of the loonie. In case of the downward move of the loonie against the US dollar it should has the support at $1.02. But this level of support is quite weak and the stronger support is at 1.0380. The Canadian dollar may encounter resistance, in case of its rally versus the US currency, at 1.01 as the level of parity is hard to overcome because of the psychological reasons. Beyond parity the level of 0.97 is the level of resistance.

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