Loonie Slides Below Parity

USD/CAD Fundamental Analysis

The Canadian dollar extends its weakness before the US dollar today after sliding below parity last Friday. The unexpected drop in employment in January added to concern that the world’s 11th-largest economy is slowing.

The Loonie dove off to beneath parity as Statistics Canada reported employment fell in January for the first time in six months. The drop by 21,900 jobs, following December’s revised gain of 39,800, weighed on risk demand as economists just estimated a weaker gain of 4,500 jobs for the period. Though the unemployment rate decreased to 7.0 percent from 7.1 percent, this was just enough to stagger the downward spiral of the Loonie’s price valuation. The jobless rate, which happens to be the lowest since December 2008’s 6.8 percent, was a result of fewer people looking for work.

Looking back at last Friday’s statement from Matthew Perrier, director of foreign exchange at the Bank of Montreal, the Loonie has indeed waned. “If we see a little giveback of the strong employment gains of the last two months, we’ll probably see Canada [dollar] weaken off” says Perrier.

Moreover, Canada had its ninth straight monthly trade deficit, while housing starts fell to the lowest since the end of the 2009 recession. Manufacturing sales fell in December, data this week is anticipated to show. Oil, Canada’s biggest export, fell for the first time in nine weeks, and investors erased bets that interest rates could rise this year.

“The sentiment for the Canadian economy has been shifting, and something like the jobs data sends a signal that we’re in more of a precarious situation today than we thought,” says Aaron Fennell, a futures specialist at Bank of Nova Scotia’s ScotiaMcLeod in Toronto.

The Loonie could well be in for more wanes in the ensuing exchanges, suggesting a buy position for the USDCAD. It would be wise to look out for probable technical corrections on the currency pair’s movement, as the price index indicates that the pair is already overbought.

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