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Loonie looking good as Canadian GDP on target

Published June 30, 2016
  • The Canadian dollar is trading at its best levels against the greenback since last Thursday as month end flows support the Loonie
  • Even a 2% drop in oil prices to $48.90 from yesterday's high of $50 is being ignored by the market thus far
  • Instead focus has shifted to relatively positive economic data to close out the month and the first half of 2016
  • Canadian GDP for April came in on target this morning, increasing 0.1%, and Producer Prices for May rose 1.1%, well above expectations of a 0.4% increase and the largest rise in over a year. 
  • The pop in prices was largely attributed to the steep rise in energy products due to the wildfires which also pushed the raw materials price index up by 6.7% from April
  • The US reported that jobless claims were marginally higher last week at 268k from 258k previously – however the long term trend is still rather favourable…
  • …claims have been below 300k for 69 consecutive weeks, a level associated with a rather robust labour market…
  • …of course one must account for the declining participation rate in the US which indicates that people have left the workforce altogether (not the greatest of stats….where do they go?)…
  • …and when one couples that metric with the cloud of uncertainty as a result of the 'Brexit' vote it would be reasonable to expect the Fed to stay on the sidelines for the rest of 2016
  • However, that does not mean that the USD is more likely to underperform in the second half
  • Sure the Fed looks like it will be on hold, but the Bank of Canada is certainly not going to be in a position to raise rates ahead of the Fed – that relative landscape should remain much the same with any BoC hike to come afterwards, especially considering the negative drag the Canadian economy is expected to reveal in Q2 GDP due to the Alberta wildfires
  • USDCAD traders should note the recent wide sideways trend of 1.2650 – 1.3100 and watch near term levels of support for the USD at 1.2878 and resistance at 1.3100 – a move beyond those levels would mark a deeper shift in sentiment

Chart: USDCAD holding above key 21 DMA at 1.2878