Fundamental Forecast for Gold: Neutral
- Canadian Dollar Forecast to Gain versus US Dollar
- Canadian Dollar Gains, Yen Slumps on Central Bank Stimulus Hopes
- US Dollar Response to Jobs Report to Reflect Fate of QE3 Expectations
The Canadian Dollar had a strong week, finishing third best among the majors, only trailing the safe havens, the Japanese Yen and the US Dollar. The Canadian Dollar’s strength was most pronounced against the European currencies, gaining 2.67 percent, 2.65 percent, and 1.04 percent against the Euro, the Swiss Franc, and the British Pound, respectively. While the Canadian Dollar slightly outpaced the other commodity currencies, the Australian and New Zealand Dollars, the Canadian Dollar’s outlook is bolstered by some data at the end of the week that should help it stay afloat despite flows to safety and a deteriorating US economy (which is crucial as Canada’s largest trading partner).
On Friday, the Canadian labor market report for June showed that the Unemployment Rate dropped to 7.2 percent, its lowest rate since March, as the economy added 7.3K jobs. This is the lowest such Unemployment Rate for the Canadian economy over the past three-years. However, it comes at the expense of the Canadian labor force seeing a lower rate of participation; this could mean that participants are leaving the work force, which does not bode well for the future of the economy. Nonetheless, with the Participation Rate at 66.7 percent, above its recent low of 66.5 percent, there’s little to be concerned about in the near-term.
Also released on Friday were Building Permits for May, which blew by the consensus estimate of -1.0 percent at 7.4 percent growth. This easily wiped out April’s contraction of 4.4 percent. While this may add to speculation that the Canadian housing market is in the midst of a growing bubble. If this is the perspective that Bank of Canada policymakers take, then hawkish commentary should be expected in the near-future which should in turn be supportive of the Loonie.
We concentrate on these developments because the docket going forward is thin. Of note, and the only note, Housing Starts for June are due on Tuesday. According to a Bloomberg News survey, starts are expected to come in at 204.0K, slightly below the 211.4K starts in May. However, this would represent the sixth month in a row, and eighth time out of nine, that Housing Starts have been above 200.0K. This, like the Building Permits release from Friday, could fuel chatter from the Bank of Canada that a housing bubble is forming, which should spark speculation for higher rates in the future.
Aside from the Housing Starts print, nothing jumps off the docket. Instead, we expect the Canadian Dollar to trade closely to risk-trends, finishing neither first nor last among the majors. Like it did this week, the Loonie should finish near the top of the majors in a risk-off environment (behind the Japanese Yen and the US Dollar), or in the middle of the pack during a risk-on environment (its fundamentals are considerably stronger than most of the majors as well). –CV