Canada GDP seen boosting USDCAD

<p>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 […]</p>

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.
Canada GDP vs loonie

Join our live webinars for the latest analysis and trading ideas. Register now

GAIN Capital UK Limited (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.

No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.

For further details see our full non-independent research disclaimer and quarterly summary.