[B][B]Canadian Dollar Direction To Come From Inflation Data[/B][/B]
[B]Fundamental Forecast for Canadian Dollar: [/B][B]Bullish[/B]
- Unemployment Rate Unexpectedly Fell To 8.4% , As Economy Added 30.6Kk jobs
- The Ivey-PMI reading for September Jumped to 61.7 From 55.7, On Stronger Employment
The Canadian Dollar soared throughout the past week and broke from its recent range that has held since the beginning of August. A slew of positive fundamental data and increasing optimism over the global economy provided loonie support. An unexpected rate hike from the RBA raised the outlook for broader growth which spurred demand for risky assets which fueled bullish sentiment for the com-dollars. The Ivey-PMI gauge rising to its highest level since July, 2008 confirmed the improving outlook for the Canadian economy. A surge in the employment component along with slight advances in inventory, prices and supplier delivery led to the increase in business activity. Meanwhile, the Canadian employment report confirmed the strength in the labor market as the economy generated 30,600 new jobs in September leading to a drop in the unemployment rate to 8.4% from 8.7% the month prior. Goods producing employers led the way with 46,200 hires sending total fulltime jobs skyrocketing to 91,600. The strong commitment to long-term employees underlines the improving outlook for growth by managers. This was evident in the Bank of Canada’s survey of business leaders which showed that 69% of them believe that their sales will increase over the next year.
Focus will now turn toward next week’s consumer price report and its implications for future interest rate policy. Economists are forecasting that prices remained flat during September which will allow the central bank to maintain its accommodative monetary policy. The BoC has recently reaffirmed that they will not look to raise rates until mid-2010 unless they see upside risks to inflation emerge. Traders should watch the core reading as it traditionally garners the committee’s focus and greater than expected rise could generate Canadian dollar support. However, policy makers continue to express concern that the loonie’s strength will deter demand from the U.S. its main trading partner. Therefore, they will look to keep rates low for as long as possible and could contemplate intervention if its currency continues to appreciate.
The USD/CAD had been trading in a wide range between 1.0600 and 1.1100 which it broke this week to test 1.0400 before finding support. The psychological level is the only barrier before a test of 1.0299-9/28/08 low which would erase the entire post-Lehman dollar rally. It appears that we ultimately the level will be tested as the fear that the event generated is being priced out of the marketplace. Increasing interest rate expectations from the Fed and a turn in risk appetite could delay lead to a retrace for the pair before ultimately reaching the critical level. Resistance may come at 1.0651-10/7 high with the 20-Day SMA at 1.0724 as the next barrier.- JR