Canada GDP seen boosting USDCAD

The Canadian dollar is the worst performing currency year-to-date and Friday’s release of December and Q4 GDP could well trigger fresh losses if the report comes in at least within expectations.

December GDP is expected to have fallen 0.3% from November’s increase of 0.2%, which would be the first monthly contraction in 6 months. The quarterly figure is expected to slow to 2.5% from 3.2%, the lowest in since Q2.

The bullish bias of the pair is especially highlighted by the fact that it took as many as 12 sessions for USDCAD to drop 2.8% earlier this month, but took as few as three sessions to pare back all those losses. What appeared to be an overcrowded trade in late January may be transforming into a recurring opportunity to post fresh and swift gains.

The 7-day consolidation in oil prices following a 12% increase coincided with a sharp rise in USDCAD over the same period.

Painful adjustment

Tomorrow’s data could prove instrumental in retesting the 1.1200 level. In the event it fails to do so, there is ample ground for fresh gains on next week’s Bank of Canada decision and February’s jobs report.

The former can weigh on the currency via the usual practice of downgrading outlooks and the latter will be scrutinized for the latest interplay between part-time and full-time jobs, as well as the steadying in the unemployment rate.

As energy producers leave for lower-cost nations, Canada will have to endure a painful adjustment, especially as the central bank remains unable to slash interest rates at a time when real-estate overvaluations risk bursting another dangerous bubble.

Such adjustments will take years and a weaker currency should be part and parcel of the process.

1.0950 is increasingly serving as a robust support in USDCAD, en route to 1.1370 and 1.1580.