The USDCAD has been toying around with price parity since early last week. In spite of weak fundamentals from the world’s largest economy, coupled with persistent worries in the Euro Zone, traders have been investing in the riskier Canadian dollar on speculations that the central banks would step in to reel in the weakening global economy. Looking ahead to the week’s exchanges, would the long-term bearish bias prove strong enough to propel the Loonie to a fifth straight week of gains?
Friday propelled the markets to bet on higher-yielding assets and snap losing streaks, after a report that US jobs gained more than what was expected by economists. The resulting payrolls increase of 163,000 in July compared to estimates of 100,000, and a downwardly revised 64,000 gain last June. The jobless rate, however, climbed to a five-month high of 8.3 percent. Nevertheless, the labor market data left the door open to additional Federal Reserve measures to stoke growth. This resulted in the equities market rallying to three-month highs in the US and four-month highs in the Euro Zone.
Today, Asian shares rose on buoyed risk appetite, as the markets also appear more confident that the European Central Bank will act to contain the Euro Zone debt crisis. The ECB last week offered to step in and buy bonds to bring down the borrowing costs of Spain and Italy. Although the offer was heavily conditional and markets were originally disappointed by the lack of immediate action, expectations of decisive moves have now started to rebuild. Also, both Italy and Spain have played down notions that they will request full bailouts after Italian Prime Minister Mario Monti said that what the indebted country needs is moral, and not financial, support.
With the Maple Leaf on a bank holiday in observance of Civic Day, but more so as a result of market speculations on likely hints from Fed Chairman Ben Bernanke’s discourses today, the Loonie is likely off to post gains. The Fed chief is set to deliver a speech titled "Economic Measurement" at the 32nd General Conference of the International Association for Research in Income and Wealth in Cambridge, via satellite. Faster job growth is needed to push down an unemployment rate that has been stuck above 8 percent since February 2009, one reason why the Fed assured that it is prepared to take new steps if needed to boost the economy.
In the medium-term, the Loonie currency is in its longest streak of gains against the Greenback in six months – just last week rallying to its fourth consecutive week. A short position is suggested for the USDCAD exchanges today. Be wary though of price correction as some investors are likely to take in profits from last Friday.
Written for AlgosysFx