The USD/CAD pair rose back last week, as investors were concerned over the outlook for global growth amid signs economic growth is slowing down in the United States, while mounting fears from the European debt crisis boosted demand for lower yielding assets, which weighed down heavily on the CAD, as it boosted demand for the USD, and accordingly, the USD/CAD pair was able to gain momentum.
Moreover, crude oil prices dropped heavily last week, which also added further pressure on the CAD, and provided the USD/CAD pair with further bullish momentum to rise to the highest level since June.
Rising pessimism in global financial markets should put the CAD under more pressure over the coming period, where investors fear the U.S. economy is heading into a double dip recession, and since the United States is Canada’s largest trading partner, we should expect the Canadian economy to suffer deeply, and that should provide the USD/CAD pair with bullish momentum, unless of course the Fed announce a third round of quantitative easing, since it will put the USD under huge pressure, although this is unlikely.
Highlights for this week that will probably affect the USD/CAD pair’s direction are:
Monday August 08:
The week will start light with no data queued for release from both Canada and the United States which leaves the market volatility and choppy trading dominant ahead of the FOMC decision.
Tuesday August 09:
Canada will release the housing starts index for the month of July at 12:15 GMT, where housing starts are expected to ease to 193.2 thousand, compared with the prior estimate of 197.4 thousand back in June.
The main focus will be on the FOMC rate decision at 18:15 GMT, where the Federal Reserve is expected to keep the rate at their historical low of 0.0-0.25% and might not take more actions to support the fainting recovery, nevertheless, investors are bracing for a surprise after the unexpected moves from the SNB and the BoJ and followed by the ECB with expanding the special money operations to ease the market tension and the Fed might just do so.
Wednesday August 10:
From the U.S. the wholesale inventories index for June is due at 14:00 GMT and expected to ease to 1.0% following 1.8%.
At 18:00 GMT the Monthly Budget Statement for July is due with the deficit expected to widen to $140.0 billion from $43.1 billion.
Thursday August 11:
The ECB will release the monthly report at 08:00 GMT and will include the details of the special liquidity operations and the extension of the money operations that Trichet announced last week when the bank left rates steady at 1.50%.
Canada will release the new housing price index for the month of June at 12:30 GMT, where the new housing prices rose by 0.4% in May, while compared with a year earlier, the new housing price index rose by 1.9% back in May.
Canada will also release the international merchandise trade balance for the month of June, where the trade deficit is expected to widen to 1.0 billion CAD, compared with the prior deficit of 0.8 billion CAD.
The data from the United States will start as usual with the weekly jobless claims at 12:30 after they rose last week by 400 thousand.
Also at 12:30 GMT the trade balance for June is due and the deficit is expected to narrow to $47.5 billion from $50.2 billion.
Friday August 12:
The United States will end the week with a high note starting with the retail sales index for July at 12:30 GMT, which are expected with 0.4% rise following 0.1% and excluding autos with 0.2% rise after remaining unchanged in June and excluding auto and gas to hold steady with 0.2% rise.
The University of Michigan Confidence for August is due at 13:55 GMT, and expected with a slight drop to 63.2 from 63.7.
The business inventories index for June will follow at 14:00 GMT and expected to slow to 0.6% from 1.0% the previous month.