[B]
[/B]
[B][B]Canadian Dollar Appears Range Bound As GDP and Unemployment Offset[/B][/B]
[B]Fundamental Forecast for Canadian Dollar: [/B][B]Bearish[/B]
- Canadian retail sales rose more than expected by 1.0% versus expectations of 0.1%
- Canada reported a record current account deficit of C$11.2 billion
The Canadian dollar was under pressure for the majority of the week but managed to erase some of its losses as risk appetite and oil prices found support at the tail end. The “loonie’ started the week on a positive note with June retail sales posting a 1.0% gain versus expectations of 0.1%, before fears over a limited global recover sunk the demand for risky assets and the local currency. It was the fifth gain in six months led by a 4.7% increase in gasoline receipts. However, the second quarter current account dampened the outlook for growth as the export driven economy saw its deficit widen to a record C$11.2 billion. A C$9.3 billion drop in exports outpaced imports and led to the first traded goods deficit since 1976. The collapse in trade should lead to continued pressure on manufacturers to cut costs which will add to weakness in the labor market.
Indeed, next week’s employment report is expected to show a rise to 8.8% in unemployment from 8.6% which would be the highest level since January, 1998. The economy is expected to have lost jobs for the ninth time in the last ten months with economists predicting a loss of 20,000 more in August. The weakening labor market combined with declining demand for exports will dim the outlook for domestic growth and could sink the “loonie”. However, we could see bullish Canadian dollar sentiment early in the week from the GDP report which is expected to show a 0.2% rise in June which would be the first monthly gain since July,2008. The quarterly reading is also expected to improve to -3.0% from -5.4% as the recession shows signs of slowing. An expected improvement in the Ivey PMI manufacturing index to 54.0 from 51.8 could add to “loonie” support as the increase in activity may necessitate the hiring of new workers. The manufacturing sector has seen job losses steadily decline and if an expansion in the sector leads to job creation then we could see the outlook for the economy brighten. Nevertheless, job creation has been the biggest concern and another month of losses may be too much for “loonie” bulls to overcome. The USDCAD appears to be carving out a range between 1.0700-1.1100 and the tug of war between signs of a recovery and limited expectations of future growth could lead to sideways price action throughout the upcoming week. -JR