Back
16 Sep 2013
Loonie given wings by strengthening macro conditions, but long-term looks set for a difficult flight
FXstreet.com (London) - Improving labour market conditions drove the Canadian dollar onto a one-month high against its US neighbour, but changing risk conditions could bring a US resurgence.
The loonie was given a significant boost when employment increased by 59,200, tripling expectations, while the unemployment rate fell to 7.1 percent from 7.2 percent.
Short-term Canadian confidence was given another shot in the arm with Canadian building permits being reported up by 20.7 percent, to CAD$7.99billion in July, the highest figure on record. However this figure has given further ammunition to those predicting a Canadian property bubble as house prices continue to soar.
The Canadian dollar had found resistance at CAD1.03, with conditions in place to see a resurgence from the US dollar in the early part of this week, with a possible break above 1.0420. However, the dollar was driven down by heavy selling following the surprise resignation of President Obama’s first choice candidate Larry Summers from the race to replace Ben Bernanke as Fed Chairman at the end of his term. USDCAD broke below CAD1.03 to CAD1.0297, but this is likely to reverse when the dollar recovers its nerves.
Fed could clip loonie’s wings
As the Summers-induces jitteriness has underlines, focus on the USDCAD pair will this week shift from underlying Canadian macro health to US monetary policy, as markets brace for the outcome of the Federal Reserve’s September 17-18 meeting. It is expected that the Federal Open Market Committee (FOMC) will vote to trim its monthly treasury purchases by $10bn, down to $35bn.
Longer-term, the beginning of a Fed tapering of its “QE Infinity” programme of open-ended quantitative easing spells difficulties for the Loonie. As the Fed curtails its asset purchase programme, we will see a tightening of the US-Canadian bond spread, reducing the attractiveness of investments Canadian dollar-denominated bonds.
Risks to Canadian dollar health also come from its housing market. As last weeks construction figures demonstrated, Canadian home building appears to be on an almost exponential growth curve. And despite moves by the Bank of Canada to tighten mortgage lending rules and deleverage the market, its attempts have largely been in vain.
Taken as a whole, Canadian dollar risks outweigh its possible gains against the US dollar, and we should look for a serious dollar resurgence against the loonie in coming months.
The loonie was given a significant boost when employment increased by 59,200, tripling expectations, while the unemployment rate fell to 7.1 percent from 7.2 percent.
Short-term Canadian confidence was given another shot in the arm with Canadian building permits being reported up by 20.7 percent, to CAD$7.99billion in July, the highest figure on record. However this figure has given further ammunition to those predicting a Canadian property bubble as house prices continue to soar.
The Canadian dollar had found resistance at CAD1.03, with conditions in place to see a resurgence from the US dollar in the early part of this week, with a possible break above 1.0420. However, the dollar was driven down by heavy selling following the surprise resignation of President Obama’s first choice candidate Larry Summers from the race to replace Ben Bernanke as Fed Chairman at the end of his term. USDCAD broke below CAD1.03 to CAD1.0297, but this is likely to reverse when the dollar recovers its nerves.
Fed could clip loonie’s wings
As the Summers-induces jitteriness has underlines, focus on the USDCAD pair will this week shift from underlying Canadian macro health to US monetary policy, as markets brace for the outcome of the Federal Reserve’s September 17-18 meeting. It is expected that the Federal Open Market Committee (FOMC) will vote to trim its monthly treasury purchases by $10bn, down to $35bn.
Longer-term, the beginning of a Fed tapering of its “QE Infinity” programme of open-ended quantitative easing spells difficulties for the Loonie. As the Fed curtails its asset purchase programme, we will see a tightening of the US-Canadian bond spread, reducing the attractiveness of investments Canadian dollar-denominated bonds.
Risks to Canadian dollar health also come from its housing market. As last weeks construction figures demonstrated, Canadian home building appears to be on an almost exponential growth curve. And despite moves by the Bank of Canada to tighten mortgage lending rules and deleverage the market, its attempts have largely been in vain.
Taken as a whole, Canadian dollar risks outweigh its possible gains against the US dollar, and we should look for a serious dollar resurgence against the loonie in coming months.