Currency analyst

USD/CAD outlook for October 3-7

This week Loonie grew in value due to the Iranian and Saudi decision to curb their insatiable appetites for profits. Two great oil producers have finally found the common ground and agreed for an output cap. But exhilaration ended at the end of the week. Oil prices are gradually returning to their annual trends and the USD/CAD is recovering from its recent downfall. Although we should give proper respect to the Canadian steadfast tin soldier which managed to withstand even the positive news flow from the US (US Department of labor reported that the number of initial application for unemployment benefits for this week rose by 3000 from the previous week which is much less than it was expected by analysts; the US GDP growth accelerated and reached 1,4 %; Yellen still hints at the probability of rate’s hike; US consumer confidence data continue to impress the markets with excellent readings).

Nevertheless, we can’t be a hundred percent certain that the Loonie’s rally won't last forever; it will finally depreciate in relation to its US counterpart. Numerous domestic problems and inevitable fall in oil prices will cause this downfall. Governor of the Bank of Canada Poloz in his speech on Monday stated that the Canada’s potential economic growth powered by the high birth rates is now ending. The job market in Canada is fading with rising amount of elderly. This will deter the BOC from any rate hikes in the nearest future to keep inflation in check. According to Poloz, the neutral interest rate is exactly what Canada needs right now. Poloz has also pointed at the fact that the impact of lower oil prices may influence Canadian economy significantly.

Next week will bring us many data releases offering a seasonal outlook of Canadian economy – trade balance, building permits, unemployment rate, employment change, purchasing managers’ Index. Add to this a bunch of releases coming from the United States, and the volatility bomb will explode.  Once we get acquainted with all these reports, we will be able to assess the true potential for the economic growth of Canada and define in which direction the Loonie will proceed.

If we take a look at the daily chart, we will see that there was a long period of consolidation and trading sidelines. The USD/CAD was trading within the 1.33 – 1.28 levels for many days. The breakout of the resistance line at 1.327 is unlikely possible this week; this makes us to plot a lower resistance line at 1.3212. If American statistics doesn’t give us positive result, we expect the trend go down to the support line at 1.304. If ‘bears’ manage to take situation under control, the downward trend might reach the 1,2890 mark. 

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