The Canadian dollar, like most of the major currencies, has yet to overcome the ongoing recovery in the Greenback. Fading demands from the U.S. and the global economy has tapered international trade conditions for Canada, with labor productivity cooling for the third consecutive quarter as exports account for nearly a third of GDP.
Canadian Dollar At The Mercy of Volatile Oil Prices
Fundamental Outlook for Canadian Dollar: Bearish
- International Trade and Labor Productivity Weakens
- Crude Oil Price to Spur Volatility for the Loonie
The Canadian dollar, like most of the major currencies, has yet to overcome the ongoing recovery in the Greenback. Fading demands from the U.S. and the global economy has tapered international trade conditions for Canada, with labor productivity cooling for the third consecutive quarter as exports account for nearly a third of GDP.
Despite the slowdown in the global market, the Canadian housing sector improved as building permits and housing starts surged higher, while new home prices increased for the second consecutive month. The resilience in the Canadian housing market may help to support future growth as trade conditions falter. Meanwhile, the Bank of Canada continued to hold a neutral policy stance, stating that the 3.00% interest rate was ‘appropriately accommodative’, but noted that ‘economic activity is slightly lower than expected.’ As the central bank continues to soften their hawkish outlook, overnight index swaps show that market participants have already raised bets that the BoC will cut nearly 50bp over the next 12 months, which would fuel bearish sentiment for the loonie going forward.
The economic docket for the following week remains fairly light, which could leave the Canadian dollar at the mercy of volatile oil prices. The international securities transaction survey scheduled for Wednesday is anticipated to dip lower as economists forecast the surplus to narrow to C$5.000B from C$7.247B. Meanwhile, Thursday’s release of the leading indicators and wholesale sales will be worth watching as they may shed some light on future interest rate expectation from the BoC. However, with Hurricane Ike set to hit the Gulf coast and OPEC looking to lower oil production, a rise in oil futures next week could spark a rally in the loonie. - DS
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Written by: David Song, Currency Analyst for DailyFX.com
Questions? Comments? You can email them to David at <[email protected]>.