Loonie to Put Up Gains on Positive US Fundamentals

USD/CAD Fundamental Analysis

In spite of a sharp drop in demand for the Canadian dollar following recent comments by Bank of Canada Governor Mark Carney, gains opposite the US dollar are projected today. Fundamental data from the world’s largest economy are perceived to give a boost to risk confidence, and direct some of the bullish demand to the Loonie.

In just about a day after strengthening the case for tightening monetary policy, BOC chief Mark Carney said that the need for higher interest rates has become “less imminent” bringing the Canadian dollar to fall against most of its major currency counterparts. The saving factor of which, was that over time, interest rates are more likely to go up than not. He did not elaborate though on the timing of any moves with respect to the Overnight Rate.

On a better note, the Bank raised its economic growth forecast for this year to 2.2 percent from 2.1 percent and kept it at 2.3 percent for the coming year. The 2014 growth estimate was pared to 2.4 percent from 2.5 percent, however. More from the BOC, Canada’s economy was operating at about two-thirds of a percentage point below full capacity in the third quarter, which is “slightly larger” than what policy makers had estimated in July.

Further, the US Federal Reserve’s third round of asset purchases, known as QE3, will add 0.4 percentage point to Canada’s gross domestic product by 2014, according to the Bank of Canada.

Turning the focus to the United States, orders for durable goods in the past month are expected to make a strong rebound from the previous release. Durable Goods Orders in August fell unexpectedly by 13.2 percent, but is estimated by economists to post a strong 7.1 percent rebound in September. Core data is forecast for similar optimism, after dropping by a pessimistic 1.6 percent last August. Durable Goods Orders excluding transportation items are estimated for a 0.8 percent increase in the month of September.

Aside from positive forecasts on manufacturing data out today, the Pending Home Sales report from the National Association of Realtors is expected to come out positive. August data disappointed with a minus 2.6 percent release, but is foreseen to be pared with a September 2.3 percent figure. Jobless claims for the past week are likewise looked forward to post some optimism. Based on estimates by market participants, the median forecast is that 371,000 filed for unemployment insurance for the first time last week. This compares with the 388,000 figure previously released.

Should the forecasts on US data register as expected, or better, risk sentiment is seen for some boost. A short position on the USD/CAD would be a wise move in such a scenario. Price corrections are still likely though.

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