USD/CAD Weekly Fundamental Analysis September 10-14, 2012, Forecast

Introduction: The Canadian Dollar moves in reaction to the US Dollar. Movements are small and easy to track and trade. The Canadian Dollar also responds to economic reports within Canada. It has little action against foreign currencies except during major moves or crisis.

The USD/CAD is the single biggest beneficiary of rising oil prices. Canada which is already the biggest exporter of oil to the US will experience a boost to its economy when oil price continue to increase. Therefore, if oil rises the Canadian dollar is likely to follow. Over the past years, the correlation between the Canadian dollar and oil prices has been approximately 81%. 

Weekly Analysis and Recommendation:

The USD/CAD ended the week at a record low (high for the CAD) of 0.9786 after the US dollar weakened when the jobs data on Friday showed that US employers added 96,000 jobs last month, a weak figure that could slow the momentum President Barack Obama hoped to gain from his speech to the Democratic National Convention.

The unemployment rate fell to 8.1 per cent from 8.3 per cent in July. But that was only because more people gave up looking for jobs. People who are out of work are counted as unemployed only if they’re looking for a job.

The government also said that 41,000 fewer jobs were created in July and June than first estimated. The economy has added just 139,000 jobs a month since the start of the year, below 2011’s average of 153,000.

Cash-short governments were a key reason the job market was weaker in June and July than first estimated. Federal, state and local governments cut 39,000 jobs in those months – above the earlier estimate of 18,000. In previous recoveries, governments have typically added jobs, not shed them.

With the probability of QE from the Feds at over 90%, the US has weakened as traders prepare for Mr. Bernanke on the 13th.

Housing starts for August will be released on September 11 and markets are anticipating a 200k print. The big picture issue is that housing starts have been strong all year even amidst other signs of softening in the Canadian housing sector. Economists 200k housing starts call is premised  on building permit issuance having remained robust through the summer: 229k in July, 241k in June, 225k in May, etc. (the June number was the highest amount of permits issued since the summer of 2008). The rub is that the key component fuelling permit issuance is Toronto condo development — and that market has been cooling over the summer. According to data released by the Toronto Real Estate Board, sales and listings of Toronto condos were lower during August 2012 than during August 2011. Have home builders adjusted to the softening market conditions? Construction employment was weak during August (-44k nationally according to Statscan) and anecdotally, homebuilders are behaving more cautiously. That leads us to expect an eventual slow-down in condo starts as we head into the back end of 2012, even as permit issuance was quite high earlier in the year. 

FxEmpire provides in-depth analysis for each currency and commodity we review. Fundamental analysis is provided in three components. We provide a detailed monthly analysis and forecast at the beginning of each month. Then we provide more recent analysis and information in our weekly reports and we provide daily updates and outlooks.

Major Economic Events for the week of September 3-7, 2012 actual v. forecast for the Canadian & US Dollar

Historical: From 2010 to present

Highest: 1.0853 CAD on May 25, 2010.

Average: 1.0090 CAD over this period.

Lowest: 0.9407  CAD on Jan 26, 2011.

Economic Highlights of the coming week that affect the American and Canadian Markets.

Government Bond Auction

Date Time Country 

Sep 10 09:30 Germany 

Sep 10 15:30 Italy  

Sep 11 00:30 Japan 

Sep 11 08:30 Holland 

Sep 11 09:10 Greece 

Sep 11 09:30 UK 

Sep 11 14:30 UK 

Sep 11 17:00 US 

Sep 12 09:10 Italy  

Sep 12 09:10 Sweden 

Sep 12 09:30 Germany 

Sep 12 09:30 Swiss 

Sep 12 14:30 Sweden 

Sep 12 17:00 US 

Sep 13 00:30 Japan 

Sep 13 09:10 Italy  

Sep 13 09:30 UK 

Sep 13 15:00 US 

Sep 13 17:00 US 

Sep 14 10:00 Belgium