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Canada Dollar Weakens to Lowest Since 2009 as Crude Oil Tumbles
Canada’s dollar weakened to the lowest level since July 2009 on concern tumbling oil prices may endanger development of the nation’s largest export and the business investment needed to drive economic growth.
The currency fell against most of its major peers as dimming prospects for global demand and surging oil supply pushed the price for the international benchmark grade of crude oil below $85 a barrel, the least in four years. That is below the level needed to make some oil sands projects profitable, according to a report from the International Energy Agency.
“People are beginning to question whether we’re getting into a threshold range where some oil sands production becomes dicey and you might start to see an economic impact,” said Emanuella Enenajor, senior Canada economist at Bank of America Merrill Lynch, by phone from New York. “That’s affecting the currency.”
The loonie, as the Canadian dollar is known for the image of the aquatic bird on the C$1 coin, fell as low as C$1.1314 per U.S. dollar before trading at C$1.1297 at 5 p.m. in Toronto. One loonie buys 88.52 U.S. cents. This is the first time since July 2009 the loonie has fallen below 89 U.S. cents.
The Bank of Canada reiterated last month the nation’s economic recovery hinges on exports and business investment taking over from over-indebted consumers.
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USD/CAD forecast for the week of October 20, 2014
The USD/CAD pair rose during the course of the week, but found enough resistance at the 1.14 level to turn things back around and form a shooting star. However, the previous two weeks formed hammers, so we feel that the market is essentially going to consolidate in this general vicinity. We do not anticipate any type of selling to occur, so therefore we are going to step on the sidelines in order to avoid a lot of the potential volatility and grinding type of action that we are going to see.
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USD/CAD drops as growth concerns weigh
The U.S. dollar dropped against its Canadian counterpart on Tuesday, as concerns that weaker global growth could act as a drag on the U.S. economy weighed.
USD/CAD hit 1.1205 during early U.S. trade, the pair's lowest since October 14; the pair subsequently consolidated at 1.1212, retreating 0.65%.
The pair was likely to find support at 1.1184, the low of October 14 and resistance at 1.1362, the high of October 16.
Global growth concerns persisted after official data earlier showed that China’s economy grew at an annual rate of 7.3% in the three months to September, slightly higher than the 7.2% forecast by economists, but slowing from 7.5% in the second quarter.
It was the slowest rate of growth since the first quarter of 2009, in the midst of the global financial crisis.
The slowdown fuelled fears that China will miss its annual growth target of 7.5% and added to speculation that the government will need to roll out fresh stimulus measures to avert a sharper slowdown.
Market participants were looking ahead to Wednesday’s rate review by the Bank of Canada, with the bank expected to leave rates on hold at 1.0%.
Elsewhere, the loonie was sharply higher against the euro, with EUR/CAD tumbling 1.09% to 1.4290.
The single currency came under pressure after Reuters reported that the European Central Bank is examining plans to purchase bonds issued by companies, or corporate debt, to help shore up growth and boost slowing inflation in the euro area.
The report said the bank could activate the new stimulus plan as soon as December and start bond purchases by early next year.
The ECB began purchasing covered bonds on Monday in a bid to increase liquidity in the region.
Later in the day, the U.S. was to release private sector data on existing home sales.
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Bank of Canada leaves interest rate unchanged at 1%
The Bank of Canada left its benchmark interest rate unchanged in October, while dropping its neutral reference about its next policy rate move, it announced on Wednesday.
The BoC said it was leaving its overnight cash rate unchanged at 1%, in line with expectations.
Canada’s real GDP growth is projected to average close to 2.5% over the next year before slowing gradually to 2.0% by the end of 2016, roughly the estimated growth rate of potential output.
Underlying inflationary pressures are muted, given the persistent slack in the economy and the continued effects of competition in the retail sector.
As the economy reaches its full capacity in the second half of 2016, both core and total CPI inflation are projected to be about 2% on a sustained basis.
"Weighing all of these factors, the Bank judges that the risks to its inflation projection are roughly balanced. Meanwhile, the financial stability risks associated with household imbalances are edging higher. Overall, the balance of risks falls within the zone for which the current stance of monetary policy is appropriate and therefore the target for the overnight rate remains at 1%."
BoC Governor Stephen Poloz was to comment on the decision at a press conference later in the day.
USD/CAD was trading at 1.1199 from around 1.1288 ahead of the announcement.
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Loonie ends slightly higher amid positive global economic data
The Canadian dollar closed higher Thursday amid positive economic news from Europe and China and rising commodity prices.
The loonie gained 0.08 of a cent to end at 89.02 cents (U.S.).
Financial information company Markit said its composite purchasing managers’ index for the euro zone – a gauge of business activity across the manufacturing and services sectors – rose to 52.2 points in October from 52.0 in September. Anything above 50 indicates expansion.
Also, HSBC’s preliminary version of an index based on a survey of Chinese factory purchasing managers rose to 50.4 from 50.2 in September. HSBC’s chief China economist, Hongbin Qu, said manufacturing likely stabilized in October but the world’s No. 2 economy continues to show signs of “insufficient” demand.
Financial markets have been volatile over the past month amid worries that the euro zone could slip back into recession and that China’s economy was weakening.
The loonie had slipped 0.12 of a cent Wednesday as the Bank of Canada left its key rate unchanged at one per cent.
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USD/CAD forecast for the week of October 27, 2014
The USD/CAD pair fell during most of the week, but we found enough support at the 1.12 level to find buyers. That being the case, the market looks as if it’s ready to go higher, and although we formed a shooting star for the previous week, we had two hammers before that so we believe that more than likely the market will grind sideways for the most part in the near term, but ultimately will break out to the upside and head to the 1.14 level. Selling isn’t even a thought.
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USD/CAD almost unchanged ahead of U.S. housing data
The U.S. dollar was almost unchanged against its Canadian counterpart on Monday, as investors eyed the release of U.S. pending home sales data later in the day after a disappointing U.S. housing report on Friday fuelled uncertainty over the health of the market.
USD/CAD hit 1.1246 during early U.S. trade, the pair's highest since October 23; the pair subsequently consolidated at 1.1247, easing up 0.06%.
The pair was likely to find support at 1.1181, the low of October 22 and resistance at 1.1294, the high of October 22.
Investors were warry over the health of the U.S. housing market after a report on Friday showed that U.S. new home sales rose 0.2% lat month to 467,000 units, below expectations for an increase to 470,000 units.
August's figure was downwardly revised to a 15.3% climb to 466,000 units from a previously estimated 18.0% jump to 504,000 units.
Sentiment on the greenback also remained vulnerable as fears that a slowdown in global economic growth could act as a drag on the U.S. economic recovery have prompted investors to push back expectations for an increase in interest rates by the Federal Reserve to the second half of 2015.
Meanwhile, market sentiment mildly recovered as the European Central Bank announced the results of yearlong tests to assess the finances on 150 banks on Sunday. Overall, 25 banks were found to have a capital shortfall, but most have already taken steps to resolve this, the ECB said.
In total, 13 banks still need to come up with a total of €9.5 billion in extra capital, which was at the lower end of market expectations.
The loonie was lower against the euro, with EUR/CAD rising 0.23% to 1.4264.
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USD/CAD holds steady after upbeat U.S. data
The U.S. dollar held steady against its Canadian counterpart on Thursday, as market sentiment improved after the release of upbeat U.S. third quarter growth data, while the Federal Reserve's latest policy statement continued to lend support to the greenback.
USD/CAD hit 1.1165 during early U.S. trade, the session low; the pair subsequently consolidated at 1.1181, easing 0.06%.
The pair was likely to find support at 1.1118, Wednesday's low and a three-week low and resistance at 1.1254, the high of October 28.
Risk sentiment was boosted after the Commerce Department reported that U.S. gross domestic product grew at an annual rate of 3.5% in the three months to September, beating forecast for 3%.
A separate report showed that the number of Americans filing new claims for jobless benefits rose for a second week last week, but levels still pointed to a recovery in the labor market.
The Labor Department said initial jobless claims rose 3,000 to a seasonally adjusted 287,000.
The greenback had strengthened broadly earlier, after the Fed said Wednesday that it is winding up its quantitative easing program, signalling that it was confident the U.S. economic recovery would continue.
The Fed said targets for inflation and a reduction in unemployment were on track, but added that interest rates would remain close to zero for a "considerable time".
The U.S. central bank said that although the jobs market is strengthening, there is still room for improvement, but not “significant improvement,” as it has said previously, in the labor market participation rate.
The loonie was higher against the euro, with EUR/CAD shedding 0.29% to 1.4093.
Also Thursday, data showed that Spain’s economy grew in the third quarter and that another report the number of people unemployed in Germany declined unexpectedly this month.
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USD/CAD Forecast November 3-7
The Canadian dollar was almost unchanged last week, with USD/CAD closing at 1.1254. There are a number of key releases, highlighted by Ivey PMI and Employment Change. Here is an outlook on the major market-movers and an updated technical analysis for USD/CAD.
In a symbolic move, the Federal Reserve ended its QE program and issued a hawkish policy statement. GDP looked sharp, pointing to a deepening recovery in the US. In Canada, GDP was unimpressive, posting a decline of 0.1% last month. This was the key indicator’s first decline since January.
* All times are GMT.
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Poloz Seen Making Canada Dollar Recovery Short-Lived
Trading patterns that suggest the Canadian dollar has fallen too far, too fast to a five-year low against its U.S. peer are no match for Stephen Poloz.
After five days of consecutive declines sent the loonie to C$1.1467, the lowest since July 2009, the currency clawed back some losses yesterday and will settle in a short-term range of C$1.12 to C$1.13, according to the Bank of Montreal. Then it will resume its decline to C$1.15 by year-end as Bank of Canada Governor Poloz continues to stoke the economy with monetary stimulus as the Federal Reserve moves to normalize policy.
“We see potential for near-term pullback as short-term valuations get overstretched,” Matthew Perrier, director of foreign exchange at Bank of Montreal, said yesterday by phone from Toronto. “The weaker CAD outlook is underpinned by a generally strong U.S. dollar outlook, with the U.S. having finished tapering and focus shifting to the timing of the first rate hike.”
The loonie, as the Canadian dollar is known for the image of the aquatic bird on the C$1 coin, fell 0.2 percent C$1.1408 at 8:10 a.m. today in Toronto. One loonie buys 87.66 U.S. cents. The currency completed its last five-day streak of losses on Jan. 10.
The currency has fallen 6.9 percent versus the greenback this year and is down more than 20 percent since reaching an almost four-year high of 94.07 cents on July 27, 2011.
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