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USD/CAD: Loonie Plummets, Trades Near 6-Year Lows
Lower oil prices and US dollar surge have dragged the loonie close to the lowest point in six years on Wednesday. Meanwhile, traders are gearing up for US retail sales and Canadian employment data due out later this week.
The loonie was down 0.62% at C$1.2765 against the greenback, after hitting the intraday low of C$1.2771, which is close to the level traded in March 2009.
The resource-linked loonie was weakened by falling oil prices, as WTI futures dropped 0.75% to $47.93 a barrel. Crude prices tumbled in response to the Energy Information Administration’s (EIA) fresh report about rising oil inventories.
The numbers from the week ending March 6, showed that US oil stockpiles rose by 4.51 million barrels, below the survey of 4.75 million, after a record increase of 10,30 million barrels seen in the previous week. This brought stockpiles of US crude to 448.9 million through the week ending March 6, the highest level on record.
Also, the US Energy Department said on Tuesday that the price of WTI is likely to average $52.15 this year rather than the $55 projected last month.
US strength
Meanwhile, the loonie is also looking weaker in comparison to the greenback’s growing strength, especially in light of increasing bets of a Fed rate hike priced in for some time this summer.
“The US dollar’s sharp rally since the middle of last year is displaying little signs of reversing course any time soon … The risk also appears to be rising that US dollar strength could accelerate even further in the near-term as the Fed appears to be moving closer to raising rates from around the middle of the year,” currency analyst at Bank of Tokyo-Mitsubishi UFJ, Lee Hardman, said in a research note.
Moreover, the lack of comments from policymakers about the dangers of a high US dollar have somewhat prevented any type of reversal.
“So far US policymakers have displayed little concern over the sharp strengthening of the US dollar which is seen as an adjustment to reflect the outperformance of the US economy. As highlighted yesterday by Jason Furman, who is the Chairman of the White House Council of Economic Advisers, the stronger US dollar will provide a headwind to growth in the US. However, it is unlikely to significantly alter the outlook for solid growth as the US is a large closed economy,” Hardman added.
Traders are now focusing on US retail sales data tomorrow, as economists estimate 0.3% growth in February. Also, markets are closely eyeing next week’s FOMC meeting on March 18, where the central bank is expected to drop its "patient" phrase in preparation for an interest rate hike in the summer of 2015.
On the Canadian side, analysts are projecting for the economy to lose 5,000 jobs in February and the unemployment rate to tick up to 6.7%.
“Given … a growing likelihood that energy sector payrolls might already be getting trimmed, we’re looking for a 5K retreat in employment for February. The unemployment rate should tick higher to 6.7%, but there’s more pressure to come on that front,” CIBC World Markets economist Nick Exarhos said in a research note.
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USD/CAD: Loonie Takes Dive With WTI Ahead of Jobs Report
The loonie was pressured by WTI trading below $47 per barrel and resumption of the greenback power, while market participants wait for the Canadian labor data due at 1:30pm GMT on Friday.
The loonie tumbled 0.45% to $1.2738 versus the US dollar ahead of the report, which is forecast to reveal the job growth in Canada posted a modest decline in February.
The Canadian economy is estimated to have shed 5,000 jobs during the month, after gaining 35,400 new positions in January, according to analysts’ consensus. This change likely increased the unemployment rate to 6.7%.
Meanwhile, the US dollar went back on its hike on Friday, as the FOMC meeting looms ever closer, where the central bank is expected to drop the "patient" phrase from its statement, in preparation for an interest rate hike in the summer of 2015.
Fed rate hike bets have been swirling with increasing pace since Tuesday, after Fed members Loretta Mester and Richard Fisher reiterated in the previous session that they are comfortable with a June hike.
"Next week's FOMC meeting could be a more notable risk to the bullish USD consensus: while the Committee is likely to drop the patient language, Chair Yellen may also highlight headwinds for the economy and inflation from recent strengthening of the USD, which could limit scope for markets to bring forward rate hike pricing," analysts at BNP Paribas said.
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Canada's Jobless Rate Climbs to 6.8%, Natural Resource Sector in Trouble
Employment in Canada remained largely unchanged in February, as the gains in the full-time sector were offset by losses in the part time one. Meanwhile, the jobless rate rose to 6.8%, as more people searched for work amid weak manufacturing and natural resource industries.
The economy lost 1,000 jobs during the reported month, after gaining 35,400 new positions in January, Statistics Canada reported on Friday. The data missed analysts' consensus, which projected that the jobless rate would rise to 6.7%, as the economy lost 5,000 jobs. On a yearly basis, employment rose 0.7%, or by 130,000 new positions.
The higher-than-expected unemployment rate is likely to put additional pressure on the loonie, even though the markets expected slightly bigger job losses.
Goods-producing sector
One of the weakest points in the employment report included the manufacturing and natural resource industries, with both shedding 20,000 and 17,000 positions, respectively.
Most of the declines were registered in Canada's western province of Alberta, which caused the unemployment rate to rise to 5.3% – the highest since September 2011.
In contrast, there was some job creation in the construction and educational services. Moreover, the public sector saw substantial gains, while full-time employment rose by 34,000 and the part-time sector shed 34,900 positions. The majority of the gains benefited men aged 55 and older, the Ottawa-based federal agency noted.
Prior to the release, economists expressed serious concerns that the energy sector payrolls might see some losses in February, as the effects of lower crude oil prices begin to roll in.
"Obviously we saw some retailers close shop in the beginning of this year. And the energy sector should be rearing its head in employment data," CIBC World Markets economist Nick Exarhos told WBP Online before to the release. "[Firms] don’t immediately slash jobs after a few weak months of oil prices. But, given that peak in oil was more than six months ago, companies are looking to take decisive action right now."
The Bank of Canada (BoC) has repeatedly warned of the negative effects of lower crude prices on Canada's employment, economic growth as well as inflation. In response, the BoC shocked the markets in January by lowering its interest rate to 0.75% as an insurance policy against oil prices.
During the interest rate announcement in March, the bank decided to press pause on additional rate cuts to see how the economic situation develops, pleasing the markets with its statement that the current monetary policy remains "appropriate."
The BoC also made the point that crude oil prices were around the level assumed in January's Monetary Policy Report (MPR), which further confirmed that no rate cut was needed at this point.
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USD/CAD forecast for the week of March 16, 2015
The USD/CAD pair broke higher during the course of the week, showing real strength as we start to reach fresh new highs. Because of this, we feel the market should head to the 1.30 level, which of course was where we stopped right after the financial crisis. That being the case, the market looks as if we are heading there, but remember that longer-term traders want to deal with more volatility. With that, we feel that it’s probably easier to be a “buy only” firm, but would look for short-term setups, and not long-term ones.
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USD/CAD Forecast Mar. 16-20
USD/CAD continued to push higher last week, as the pair jumped about 170 points. The pair closed at 1.2772, its highest level since March 2009. There are seven events this week. Here is an outlook on the major market-movers and an updated technical analysis for USD/CAD.
In the US, unemployment claims were sharp, but inflation and consumer confidence numbers missed expectations. Canadian employment numbers beat expectations, but the Canadian dollar couldn’t take advantage.
* All times are GMT
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USD/CAD holds steady near 6-year peak after U.S., Canadian data
The U.S. dollar held steady against its Canadian counterpart on Monday, hovering close to a six-year peak after the release of U.S. economic reports fuelled further uncertainty over the strength of the economy.
USD/CAD hit 1.2818 during early U.S. trade, the pair's highest since March 2009; the pair subsequently consolidated at 1.2774.
The pair was likely to find support at 1.2617, the low of March 12 and resistance at 1.3063.
Data showed that U.S. industrial production increased 0.1% last month, below expectations for a gain of 0.2%. Industrial production for January was revised down to a decline of 0.3% from a previously reported increase of 0.2%.
The report also showed that the capacity utilization rate, a measure of how fully firms are using their resources, declined to 78.9% in February from 79.1% in January, compared to expectations for a reading of 79.5%.
Separately, the Federal Reserve Bank of New York reported that its general business conditions index decreased to 6.9 this month from a reading of 7.8 in February. Analysts had expected the index to inch up to 8.0 in March.
In Canada, official data showed that foreign securities purchases rose by C$5.73 billion in January, exceeding expectations for an increase of C$3.74 billion. December's figure was revised to a C$13.54 billion drop from a previously estimated fall of C$13.55 billion.
The loonie was lower against the euro, with EUR/CAD advancing 0.64% to 1.3510.
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January 2015 Canadian manufacturing sales -1.7% vs -1.2% exp
January 2015 Canadian manufacturing sales data report 17 March 2015
Not good headline numbers out of Canada. Sales were lower in 14 of 21 industries with lower prices for petroleum and coal products being cited as the main driver
The jump in new orders is the reports saving grace but it may not be enough to help GDP, which is likely to be adjusted lower on these numbers.
Canadian retail sales disappoint – USD/CAD rises
The volume of retail sales in Canada fell 1.7% in January, worse than expected. Also core sales plunged with -1.8%. However, CPI is up 0.9% m/m and 1% y/y. Core inflation is up 0.6% and 2.1% y/y, which is a-OK.
Retail sales numbers trump the solid inflation data. USD/CAD tops 1.27
Canada was expected to report a rise of 0.5% in headline CPI m/m in February and 1% y/y. Core inflation was expected to rise 0.5% m/m and 2.1% y/y, similar to January. Retail sales carried expectations for a drop of 0.7% in January. Core sales were predicted to slide 0.4%.
USD/CAD traded steadily in range around 1.2680 towards the multiple publications.
Earlier this week, Dollar/CAD reached new multi-year highs, pushed by the stronger dollar, weak Canadian data and falling oil prices. The relatively dovish message from the Fed allowed the loonie to recover.
Relatively stable inflation, especially a 2%+ core number, kept the Bank of Canada relatively bullish, sending a message that another rate cut (after that surprising January move) is not exactly on the cards.
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USD/CAD Forecast March 23, 2015
The USD/CAD pair initially rallied during the course of the session on Friday, but turned back around to race back down towards the 1.25 handle. However, this is an area that features quite a bit of support, and extends all the way down to the 1.24 handle. We like buying supportive candles, but do not see them yet so we are stepping to the sidelines and waiting for that signal in order to start buying again. We believe that we are going to continue to consolidate overall, as the market simply meanders.
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USD/CAD Forecast Mar. 23-27
The Canadian dollar rebounded with an excellent week, as USD/CAD plunged about 260 points last week. The pair closed at 1.2549. It’s a quiet week, with just three events this week. Here is an outlook on the major market-movers and an updated technical analysis for USD/CAD.
Canadian numbers were dismal, as manufacturing and retail sales posted sharp declines. In the US, the Fed certainly sounded more dovish despite removing the “patience” guidance.
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