The US dollar is set for a second week of gains opposite the Canadian dollar. Speculations concerning the fiscal cliff, added to weak fundamental figures from the world’s largest economy, have the markets on edge. Jobless claims jumped to the most since April 2011 after superstorm Sandy hit the labor market hard. The Greenback-Loonie pair is anticipated to end the week’s valuation above parity as traders continue to shun risk.
Investor sentiment has yet to find stable support as stocks have sold off more than 5 percent since election day on concerns that President Barack Obama and a divided Congress will not be able to strike a deal on taxes and spending. A looming fiscal cliff of $600 Billion of taxes and automatic spending cuts will start to take effect January 1 if Congress does not act. While there has been talk of a commitment to compromise from both sides, the first face-to-face meeting on the topic since the election takes place today at the White House. There is a lot at stake, and traders will be watching and waiting to see how Congressional leaders leave the meeting.
Meanwhile, jobless benefit applications shot up by 78,000 to 439,000 in the week ended November 10, according to the Labor Department yesterday. This adds to the list of economic disruptions caused by superstorm Sandy. The tropical system, dubbed as Frankenstorm, killed more than 100 people in the US, disrupted rail and subway service, left more than 8 million homes and businesses without power for days and caused insured losses estimated at $20 Billion. It is believed that many of those who lost their jobs were unable to immediately file claims because of the disruption caused by the storm, which led the numbers to swell last week.
Aside from the effect on the labor market, indices of manufacturing in New York and Philadelphia also showed contractions this month. In a report from the New York Fed, the November 2012 Empire State Manufacturing Survey indicates that conditions for New York manufacturers declined at a modest pace. The general business conditions index was negative for a fourth consecutive month minus 5.2 points. Similarly, the Philadelphia Fed’s economic index, which covers eastern Pennsylvania, southern New Jersey and Delaware, decreased to minus 10.7 in November from 5.7 in the previous month.
Industrial Production in the US is perceived to have cooled in October, also as a result of the devastation by superstorm Sandy as it knocked out power for utility customers in the Northeast. Output at manufacturers, mines and utilities rose 0.2 percent following a 0.4 percent increase in September, according to the median projection of 84 economists surveyed by Bloomberg before the Federal Reserve report.
The storm probably caused around $40 Billion in damage and will subtract 0.2 percentage point from economic growth in the fourth quarter, which will be made up in the first quarter of 2013, said Jeffrey Herzog, a senior economist at Oxford Economics Ltd. in New York.
Risk demand is deemed to be low, warranting a buy bias for the USD/CAD. Technical price corrections are still likely to ensue, though.
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