USDCAD Loonie Flying After US Manufacturing in Recession

The Canadian currency has appreciated on the back of softer data in the United States ahead of this week’s main event in the forex markets the U.S. Federal Open Market Committee (FOMC) on Wednesday. The loonie had a rough start to the week as the currency depreciated against the USD at the Asian open around 1.2310 and kept falling. Canadian manufacturing sales disappointed with a 2.1 percent contraction. The market was expected a -1.3 percent figure. The market did not have enough time to process the Canadian data when at the same time the U.S. Empire State Manufacturing index was released with a much lower than expected -2.0 reading when the forecast called for a recovery of 5.8. The American manufacturing sector has not been able to shake off the effects of a stronger USD and continues to lose momentum.

The USD/CAD then started falling from the daily high of 1.2356 to 1.2315 with several attempts to break the 1.23. The negative effect of a struggling manufacturing sector has put further pressure on the FOMC. The Federal Reserve has been the target of warning from global institutions such as the International Monetary Fund and the World Bank to refrain from raising rates this year, but the U.S. central bank seems adamant to go ahead as planned even as the evidence mounts against a September rate hike.

Canada’s central bank will not be happy with the softer Canadian data either. A stronger loonie and contracting manufacturing base is the opposite of what Bank of Canada Governor Stephen Poloz was pushing as the recipe to offset the losses in the oil production industry.

The price of oil has shown some signs of a bounce-back this year, but not enough to make a difference for investments made at last year’s prices. The OPEC will keep pumping crude at record high numbers in an effort to price the U.S. and Canadian alternative shale fields out of the market. So far the strategy has paid dividends as more rigs are closing as supply is outstripping demand of crude, but paper barrels continue to be bid dues to the combined effects of the strong USD and Saudi Arabia’s strategy.

The loonie will have a difficult week with little Canadian economic indicators on the agenda to offset potential market disruptors such as the FOMC on Wednesday, June 17 and the outcome of the Eurogroup meeting on Thursday, June 18 which is sure to center on the Greek crisis as yet another deadline approaches.

Canadian Dollar events to watch this week:

Tuesday, Jun 16
8:30am CAD Foreign Securities Purchases
Wednesday, June 17
8:30am CAD Wholesale Sales m/m
Friday, June 19
8:30am CAD Core CPI m/m
8:30am CAD Core Retail Sales m/m

*All times EDT

For a complete list of scheduled events in the forex market visit the MarketPulse Economic Calendar

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