CAD: impact from the US
USD/CAD is facing resistance in the 1.0330/40 area which stops US dollar from appreciation. On Sept. 19 (after US Federal Reserve refrained from tapering) the pair hit 3-month low at 1.0182.
There were some expectations regarding Canadian growth, but figures showed that the nation’s economy returned to growth, employment rose and consumer sentiment climbed to the highest level in more than 2 years – this is CAD-positive. As US government started its partial shutdown, one may think that CAD is vulnerable, both because of Canada’s close ties with the US, and also because the loonie doesn’t usually do well in times of uncertainty. However, Nomura says that Canadian dollar has been supported by capital flowing into the country’s treasury bills, short-term debt instruments, as US investors look for somewhere safe to park their money. This helped CAD to remain fairly strong despite recent weakness in commodity prices. In July 2011 USD/CAD dropped to a multi-year low as Congressional politicians were debating about the debt ceiling.
The conclusion is that CAD may benefit and stay strong if US government shutdown doesn’t last long. If the US shutdown persists, the risks will multiply as the resulting uncertainty begins to erode consumer and business confidence affecting Canadian economy and CAD.
Chart. Daily USD/CAD