USD/CAD Weekly Fundamental Analysis June 4 – 8, 2012, Forecast

Introduction: The Canadian Dollar moves in reaction to the US Dollar. Movements are small and easy to track and trade. The Canadian Dollar also responds to economic reports within Canada. It has little action against foreign currencies except during major moves or crisis.

The USD/CAD is the single biggest beneficiary of rising oil prices. Canada which is already the biggest exporter of oil to the US will experience a boost to its economy when oil price continue to increase. Therefore, if oil rises the Canadian dollar is likely to follow. Over the past years, the correlation between the Canadian dollar and oil prices has been approximately 81%. 

Weekly Analysis and Recommendation:

The USD/CAD broke records this week, closing at 1.0411

With crude oil prices plunging to trade close to 83.00 losing close to 20% of its value and future demand being reduced by slow growth, Canada’s economy will see negative effects as they are dependent on their oil exports to the US.

Crude oil inventories in the US hit a 22 year high, showing a huge glut in the US but also the worldwide market is over supplied.

Compounding the negative outlook for Canada with the strength of the USD as risk aversion and safe havens remain the investors cry this week. There has been little chance for the CAD to gain.

Date

Last

Open

High

Low

Change %

Jun 01, 2012

1.0411

1.0332

1.0443

1.0332

0.76%

May 31, 2012

1.0332

1.0302

1.0366

1.0262

0.28%

May 30, 2012

1.0303

1.0238

1.0311

1.0232

0.63%

May 29, 2012

1.0238

1.0257

1.0270

1.0208

-0.19%

May 28, 2012

1.0257

1.0260

1.0267

1.0224

-0.03%

This will be a big week for Canada watchers in that there are two major domestic risks that could swing market pricing beyond global influences, and other developments of less significance to markets but which nonetheless provide an evolving picture of the performance of the Canadian economy.  Both of those risks are likely to be dovish to the Canada curve and CAD in our opinion. 

Expect the BoC to take a moderately more dovish approach, but the biggest risk is whether they repeat their commitment to raising rates without providing a hint at a timeline to their views.  A fuller re-write of the April 17th statement will likely wait until the July 5th statement and MPR following Greek elections and when the BoC can revisit its quarterly forecasts and underlying domestic and foreign assumptions. 

Canada also releases job figures for May on Friday.  Look for a flat employment report as recent gains are consolidated.  Canada is coming off the strongest back-to-back monthly job gains since 1981 when 143,000 jobs were created in January and February of that year versus 140.5k in March and April of this year.  It remains to be seen whether this is a temporary lift following weakness dating back to last Fall, or whether this is sustainable.  Canada also releases housing starts for May and trade figures for April on Friday. 

FxEmpire provides in-depth analysis for each currency and commodity we review. Fundamental analysis is provided in three components. We provide a detailed monthly analysis and forecast at the beginning of each month. Then we provide more up to the data analysis and information in our weekly reports.

Major Economic Events for the week of May 28- June 1 actual v. forecast for the Canadian Dollar

Time

Cur.

 

Event

Actual

Forecast

Previous

 

Thursday, May 31

08:30

 CAD

 

Current Account

-10.3B

-11.0B

-9.7B

 

 

Friday, June 01

08:30

 CAD

 

GDP (MoM)

0.1%

0.3%

-0.2%

   

Major Economic Events for the week of May 28- June 1 actual v. forecast for the US Dollar

Time

Cur.

 

     Event

Actual

Forecast

Previous

 

 

Tuesday, May 29

 

10:00

 USD

 

CB Consumer Confidence

64.9

70.0

68.7

 

 

Wednesday, May 30

 

10:00

 USD

 

Pending Home Sales (MoM)

-5.5%

0.1%

3.8%

 

 

Thursday, May 31

 

08:15

 USD

 

ADP Nonfarm Employment Change

133K

148K

113K

 

 

08:30

 USD

 

Continuing Jobless Claims

3242K

3250K

3278K

 

 

08:30

 USD

 

Initial Jobless Claims

383K

370K

373K

 

 

08:30

 USD

 

GDP (QoQ) 

1.9%

1.9%

2.2%

 

 

09:45

 USD

 

Chicago PMI

52.7

56.5

56.2

 

 

Friday, June 01

 

08:30

 USD

 

Average Weekly Hours

34.4

34.5

34.5

 

 

08:30

 USD

 

Private Nonfarm Payrolls

82K

160K

87K

 

 

08:30

 USD

 

Unemployment Rate

8.2%

8.1%

8.1%

 

 

08:30

 USD

 

Personal Spending (MoM)

0.3%

0.3%

0.2%

 

 

08:30

 USD

 

Core PCE Price Index (MoM)

0.1%

0.2%

0.2%

 

 

08:30

 USD

 

Nonfarm Payrolls

69K

150K

77K

 

 

08:30

 USD

 

Average Hourly Earnings (MoM)

0.1%

0.2%

0.1%

 

 

10:00

 USD

 

ISM Manufacturing Index

53.5

53.9

54.8

 

 

                             

 

Historical:

Highest: 1.0842 CAD on Nov 01, 2009.

Average: 1.0147 CAD over this period.

Lowest: 0.9407  CAD on Jan 26, 2011.

 

Economic Highlights of the coming week that affect the Canadian and US Markets

Date

Time

Currency

 

Forecast

Previous

 

Jun 4

14:00

USD

Factory Orders m/m

 

-1.5%

 

Jun 5

12:30

CAD

Building Permits m/m

 

4.7%

13:00

CAD

BOC Rate Statement

   

13:00

CAD

Overnight Rate

1.00%

1.00%

14:00

USD

ISM Non-Manufacturing PMI

 

53.5

 

Jun 6

12:30

USD

Revised Nonfarm Productivity q/q

 

-0.5%

14:30

USD

Crude Oil Inventories

   

18:00

USD

Beige Book

   

 

Jun 7

12:30

USD

Unemployment Claims

 

383K

14:00

CAD

Ivey PMI

 

52.7

14:00

USD

Fed Chairman Bernanke Testifies

   

 

Jun 8

12:15

CAD

Housing Starts

 

245K

12:30

CAD

Employment Change

 

58.2K

12:30

CAD

Trade Balance

 

0.4B

12:30

CAD

Unemployment Rate

 

7.3%

12:30

CAD

Labor Productivity q/q

 

0.7%

12:30

USD

Trade Balance

 

-51.8B

14:00

USD

Fed Chairman Bernanke Testifies

   

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