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Future Does Not Look Bright for Canadian Dollar

September 26, 2016 at 15:45 by Vladimir Vyun

LooniesThere are plenty of factors that could impact the performance of the Canadian dollar this trading week. Unfortunately for the currency, most of them are negative. Let’s look at the most important of them.

We will start with events in Canada itself. Stephen Poloz, Bank of Canada Governor, will speak at Western Washington University on Tuesday overnight. If his speech is relatively hawkish, then the currency will likely rise. Canada’s gross domestic product for July will be released on Friday. Last time, the nation’s economy demonstrated growth by 0.6%, exceeding analysts’ expectations. As usually, faster growth is positive for the currency while slowdown would hurt it. The Raw Materials Price Index for August will be released the same day. The index was down in July, falling two times the average forecast and demonstrating its first decline in five months.

As for factors outside of Canada, crude oil should remain an important component in determining the loonie’s performance. The commodity has not been supportive for the Canadian dollar lately, and alas it is not likely to change anytime soon. The Organization of Petroleum Exporting Countries and Russia will meet on September 27 to discuss a production freeze that should help to buoy prices for oil. Yet analysts are very skeptical and do not believe that the discussion will bear fruit. Of course, in case they prove to be wrong, the currency will most certainly surge.

The US presidential elections can also affect the loonie as the United States are the biggest trading partner of Canada. Donald Trump with his isolationist rhetoric is seen as the one who is not going to facilitate prosperous trade if he wins the race. Thus, Canada’s currency should not react well if he will be gaining more votes in polls.

Overall, things do not look particularly good for the Canadian dollar, and analysts’ pessimistic forecasts reflect this. Forex Crunch predicted a rise of USD/CAD, saying:

The Fed didn’t raise rates but its “hawkish hold” stance is bullish for the US dollar. Canada’s economy continues to show weakness, as underscored by disappointing retail sales and CPI numbers last week.

DailyFX echoed such sentiment, stating:

The loonie is sliding, and there is no lack of reasons to blame.

The Canadian dollar is also extremely vulnerable against the Japanese yen after CAD/JPY has broken from the symmetrical triangle pattern to the downside.

If you have any questions, comments or opinions regarding the Canadian Dollar, feel free to post them using the commentary form below.

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