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Canadian Dollar Seeks Direction Ahead of Major News This Week

January 7, 2019 at 15:15 by Andrew Moran

An assortment of CAD billsThe Canadian dollar is trying to find direction at the start of the trading week ahead of several major news events in the coming days. The loonie is trying to keep up the momentum from last week on the better-than-expected jobs report and rallying energy prices.

On Friday, Statistics Canada reported that the economy added 9,300 jobs, beating median estimates of 5,000 jobs. This sent the unemployment lower from 5.7% in November to 5.6% last month. The US economy also posted a stellar labor report, creating 312,000 jobs in December.

Last week, crude oil futures surged more than 6%, lifting the loonie higher on the performance. Crude prices continued the ascent on Monday as February West Texas Intermediate (WTI) futures advanced $0.62, or 1.29%, to $48.59 per barrel on the New York Mercantile Exchange.

Crude is one of Canada’s biggest exports, and a great portion of the economy relies on the strength of the energy sector.

Investors will look ahead to a lot of events this week. The Bank of Canada (BOC) will announce its latest decision on interest rates on Wednesday, chief economists at some of the nation’s biggest banks will release their economic outlooks for 2019, and the Canadian Mortgage and Housing Corporation (CMHC) will post its monthly housing starts report for December.

It is widely expected that the central bank will hold off on a rate hike this month. Many analysts do not foresee any move on rates for several months, some betting that the BOC will not raise rates at all in 2019.

Meanwhile, a new report from CIBC warns that a cooling housing market will put a damper on the economy, since it represents about 8% of the gross domestic product. Economists Benjamin Tal and Royce Mendes, authors of the report, write:

It was a good run while it lasted, but the sun has officially set on the days of heady housing market growth fueling Canada’s national economy. The combination of restrictive macroprudential policy measures and higher interest rates has taken a major bite out of housing activity.

That’s a development which will show up in cooler GDP growth readings ahead.

A separate housing report, this time authored by RBC Economics, sounded the alarm about housing affordability in the nation, even in areas outside of the major markets, like Toronto and Vancouver. Despite housing prices dipping or only rising modestly, home affordability remains a pressing issue for most Canadians.

The bar to home ownership is higher than ever in Vancouver and Toronto, where a typical household would need to spend a record 88 per cent and 76 per cent of its income, respectively, to pay the mortgage, property taxes and utilities for a home purchased.

The bar will get even higher in 2019, as the Bank of Canada continues to hike rates. Add in tougher mortgage stress-test rules and some first-time buyers will be looking at a very high hurdle.

The USD/CAD currency pair slipped 0.2% to 1.3345, from an opening of 1.3372, at 13:55 GMT on Monday. The EUR/CAD rose 0.37% to 1.5299, from an opening of 1.5242.

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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