Canadian Dollar Weak and Crude is Not Helping

by on November 6, 2013 2:18 am GMT

The Canadian dollar takes a pause after a surprising above expectation print in the GDP that induced rally from the depths of a near two-month low. However, the nation’s largest export, crude, is not helping as crude now trades below $94 per barrel.

With a second day of declines since the rally top, the Canadian dollar is awaiting important data tomorrow for building permits and the Ivey PMI data. Analysts are expecting both reports to better than the previous readings: building approvals 7.8 percent versus pervious month’s negative 21.2 percent and Ivey PMI 54.7 versus previous month’s 51.9. With hefty expectations, a disappointment in either category could mean further downside for the Canadian dollar as it has been out shadowed by data from the United States.

Continued pessimism from the Bank of Canada could come under question if the Canadian economic data continues to improve. The institution cut economic forecasts.

Jeremy Stretch, head of currency trading at Canadian Imperial Bank of Commerce, believes that the Canadian dollar is trading more on the data out of the United States than on the weaker commodity prices. “If oil is having a poorer session, that isn’t going to help, but the direct short-term inferences on commodity prices are somewhat less than we’ve seen historically,” he said. The discount in premium on western Canadian oil has reached a record low of $42 per barrel.

The Canadian dollar futures are showing a clear longer-term downtrend over the last year, but it is currently trading above its lows. The negative sentiment may have been a bit overdone and see a boost given positive prints on tomorrow’s data. I expect the Canadian dollar to trade lower until then throughout the Asian and London sessions given the dollar strength. Support will be seen at the lower trend line at .9515-20. Support may falter if the data prints are poor and could trade as low as .9460. A better than expected reading should push the Canadian dollar to the 20 EMA near .9600.

1D Chart of 6C (Canadian dollar futures)

1D Chart of 6C (Canadian dollar futures)

The USDCAD is still looking bullish as it has closed above the 78.6 Fib. level with support just underneath. If Canadian data is worse than expected, we can see USDCAD push towards 1.050. Positive data should give USDCAD a pullback to support.