Languishing, Lethargic and Lost
January 18, 2012
RECAP: The Canadian dollar has drifted in a 1.0080-1.0280 range since the New Year, seemingly fairly valued with WTI Oil trading in the $100 range. Domestic economic data releases that have surprised to the upside, (Employment, housing starts, Ivey Purchasing Managers Survey and International Trade) which normally would have given the loonie a longer lasting lift, have been overshadowed by (in the words of the Bank of Canada) “persistent uncertainty about the global economic and financial outlook” The bullish CAD$ scenario from 2010 predicated on a robust Canadian economy; strong banking system and rising commodity prices, has become stale and mostly irrelevant due to the European credit crisis and the poor US economy.
Technical Outlook: The Canadian dollar uptrend, intact since June 2009, ended in September 2011 with the decisive break of 1.0030. The CAD$ has been on a steady downtrend ever since and remains intact while the USD/CAD rate is trading above 1.0080. A move below 1.0080 puts 0.9740 into play. To the top, a move above 1.0330 sets up a test of 1.0650.
LoonieView: A happy resolution to the European debt crisis seems as unlikely as the Costa Concordia Captain receiving a Medal of Valour. In fact, even PIMCO’s Bill Gross warns of a Greek debt default. Sure, it’s widely expected and likely priced in, yet the possibility of another risk aversion stampede to US dollars can’t be ruled out-a big negative for the loonie. Iran ‘s nuclear ambitions provide another excuse for investors to stay sidelined . An oil shock from an exchange of bombs may give the Canadian dollar a wee bit of a boost, but the subsequent fears of a global economic slowdown would be detrimental. For these reasons, I think CAD$ upside is limited and USD/CAD should be bought between 1.0030-80.
Forecast Range of the Week 1.0080-1.0230