On Monday, Loonie, the name for the Canadian Dollar cumulatively skyrocketed to new multi-month highs. It has had a remarkable strength to the US Dollar. The markets are preparing for much awaited Canadian Gross Domestic Product (GDP) growth data to be released. This development comes just in time for that important announcement later this week. The strength of the currency is remarkable, particularly as we endure a season of weak trading volumes. This decrease in activity is attributable to the US Memorial Day long weekend.
The health of the US economy plays a significant role in influencing the Canadian Dollar, given that the US is Canada’s largest trading partner. Traders and analysts are closely focused on economic signs. On either side of the border, business interests are anxiously awaiting signals that will have direct impact on currency valuations. Canadian GDP growth forecasts have plummeted in the last few months. First quarter growth now projected down from 2.6% to 1.6%.
Canadian Dollar’s Recent Performance
On Monday, as European markets opened, the Loonie shot to unprecedented heights against the US Dollar. Consequentially, the USD/CAD pair fell down into the 1.3700 range for the first time since mid-October. Market analysts are warning that this upward Canadian Dollar trend could face headwinds. Thin trading volumes have formed an emerging “low-volume wall,” which may limit any further advance in the near term.
Even with this recent strength, USD/CAD still remains below the 200-day Exponential Moving Average (EMA) just above 1.4020. The technical rejection at the 1.3700 level indicates that there’s room for more upside. As we know, the market remains unstable and unpredictable. As traders look ahead to some important economic reports later this week, the currency pair will likely see some sharp swings.
That surging macro background has helped USD/CAD bounce back into the middle of the range after a run at the 1.3700 level. Canadian Dollar markets are abuzz with speculation about the prospects of recession. Politico note that economists are already cautioning that we may be headed into an economic downturn.
Impending Economic Reports
The recent optimism about the upcoming Canadian GDP growth data has added additional complexity to the Loonie’s performance. Economists expect a violent downward revision of quarterly, annualized growth rates that are hiding how slowly they think Canada’s economy is currently growing and about to grow. This type of information is very important as it could be a game-changer in determining positive investor sentiment and market liquidity.
While all of eyes are on this National data release, all eyes are on US economic indicators. Then Friday’s US GDP and inflation figures are braced to move the markets with even more force. Moreover, any commentary from the Federal Reserve’s Meeting Minutes will be hugely influential. Given how interconnected these economies are, changes in US financial health will echo up across the border to Canada.
Market analysts are bracing for increased volatility as these economic reports draw near. Whatever happens, these forthcoming outcomes will surely decide whether the Loonie keeps flying upwards. On the other hand, it may be pulled down by domestic economic headwinds.
Oil Prices and Their Impact
Another important consideration in determining the value of the Canadian Dollar is its close correlation to oil prices. Since oil is Canada’s biggest export, changes in oil prices usually have an almost instantaneous effect on the Loonie’s strength. With global oil prices still on shaky ground, any changes could be dangerous to the currency’s momentum.
Canada is one of the world’s four largest oil producers. Accordingly, its economy is deeply affected by the highs and lows of energy markets. Traders always watch oil prices like a hawk because it goes straight to the trade balance. These prices directly affect the willingness of investors to hold Canadian assets.
Oil prices move wildly in today’s environment. This increased volatility could make for an even more uncertain overall path for the Loonie. As markets digest both oil trends and upcoming economic data, they are likely to react accordingly, leading to potential shifts in currency valuation.