The Bank of Canada is expected to lower their benchmark rate by 50 bps to 0.50% which would be a new record low. The Canadian economy contracted by 3.4% in the fourth quarter which was the fastest pace since 1991. Household spending fell for the first time as consumer shave completely pulled back as companies continue to lay off workers.
[B]Fundamental Outlook[/B]
The Bank of Canada is expected to lower their benchmark rate by 50 bps to 0.50% which would be a new record low. The Canadian economy contracted by 3.4% in the fourth quarter which was the fastest pace since 1991. Household spending fell for the first time as consumer shave completely pulled back as companies continue to lay off workers. The economy lost 129,000 jobs in January which has supported the BoC’s forecast of a 4.8% contraction in 1Q growth. The forecast was originally seen as aggressive but fundamental data has supported it including manufacturing shipments falling 14.8% and retail sales dropping 5.4% in December. The weak growth outlook supports the bearish “loonie” technical outlook. The USD/CAD has rallied over 300 pips in the last two days, so we could see a retracement on the news. The 10/28 high of 1.3020 lies ahead as resistance, but if it fails 1.4000 is the next barrier.
[B]Technical Outlook [/B]
As I’ve favored the last few weeks, the triangle that has been underway since October is probably complete at 1.2020. The breakout scenario is favored as long as price is above 1.2348. The rally above 1.2770 inspires confidence in the bullish outlook.
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[I]To discuss this report contact John Rivera, Currency Analyst: [email protected][/I]