Strong Canada data boosts loonie

The Canadian dollar has started the week with gains. Currently, USD/CAD is trading at 1.2643, down 0.40% on the day.

It has been a busy start to the week for Canadian fundamentals, after just one event last week. The numbers were much stronger than expected, which has given a boost to the Canadian dollar. Housing Starts jumped from 228 thousand to 282 thousand, an exceptionally high reading. This crushed the estimate of 236 thousand. There was more positive news from Manufacturing Sales, which rebounded with a gain of 0.9% in December, after a read of -0.6% beforehand. This easily beat the street consensus of 0.2%.

With Canada’s economy showing some improvement since the darkest days of Covid-19, the inevitable question as to when the Bank of Canada might raise interest rates is being bandied around. South of the border, the Federal Reserve has made it clear that it will remain in ultra-accommodative mode, and is not expected to raise rates before 2024. The Bank of Canada could well stay on the sidelines until the Fed makes a move first. Canada’s economy is estimated to have declined by 5.4% in 2020, compared to a 3.5% decline in the US and the latter is likely to recover to pre-Covid levels more quickly than Canada. The US vaccine rollout, which has been slow to get going, is nonetheless moving more quickly than in Canada. As well, the Bank of Canada has expressed its concern about the high exchange rate, as the US dollar showed sharp deprecation in 2020. The central bank will be reluctant to make any moves that would bolster the Canadian dollar, such as hiking interest rates.

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USD/CAD Technical

• USD/CAD is testing support at 1.2642. Below, there is support at 1.2590
• The 50-day moving average (MA), is at 1.2725.
• There is resistance at 1.2764. This is followed by resistance at 1.2834

For a look at all of today’s economic events, check out our economic calendar. www.marketpulse.com/economic-events/

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