Forexpros – The U.S. dollar climbed to a four-month high against its Canadian counterpart on Friday, as ongoing concerns over the crisis in the euro zone overshadowed strong Canadian economic data.
USD/CAD hit 1.0225 on Friday, the pair’s highest since January 16; the pair subsequently consolidated at 1.0218 by close of trade, jumping 2.14% on the week.
The pair is likely to find support at 1.0137, Friday’s low and resistance at 1.0251, the high of January 16.
Demand for the safety of the greenback remained supported as fears over the possibility of a Greek exit from the euro zone dominated market sentiment, after cross party talks aimed at forming a coalition government failed, forcing another round of elections.
Market sentiment found some support on Friday after an opinion poll in Greece indicated that pro-bailout party, New Democracy was leading the polls ahead of the fresh elections, due to be held on June 17.
Meanwhile, concerns over the health of Spain’s banking system and the prospect of more state bailouts for lenders saw the country’s borrowing costs climb above 6% last week. On Thursday, ratings agency Moody’s cut the credit ratings of 16 Spanish banks.
The loonie, as the Canadian dollar is also known, came under additional selling pressure as crude oil prices dropped 3.87% over the week to settle at USD91.80 a barrel on the New York Mercantile Exchange on Friday, their lowest level since the start of the year.
Raw materials, including oil account for about half of Canada’s export revenue.
In Canada, official data on Friday showed that consumer price inflation rose 0.4% in April, bringing the annualized rate of inflation to 2%, surpassing expectations for an increase of 1.9%.
The data fuelled expectations for an interest rate hike by the Bank of Canada in the coming months after the central bank indicated last month that the rate of inflation is rising more rapidly than previously expected.
Earlier in the week, official data showed that Canadian manufacturing sales jumped 1.9% in March, the largest increase since September 2011, easily surpassing expectations for a 0.4% increase.
In the U.S., the minutes of the Federal Reserve’s May meeting indicated that several policymakers remained open to further efforts to stimulate the U.S. economy if growth falters or if the risks to the economy became great enough.
Data on Thursday showing that manufacturing activity in the Philadelphia-region contracted for the first time in eight months in May added to concerns over the pace of the U.S. economic recovery.
The Federal Reserve Bank of Philadelphia said that it’s manufacturing index dropped by 14.3 points to minus 5.8 in May from the previous months reading of 8.5.
Analysts had expected the index to rise by 1.5 points to 10.0 in May.
A separate report showed that the number of people who filed for unemployment assistance in the U.S. in the week before last held steady at a seasonally adjusted 370,000, confounding expectations for a decline of 5,000 to 365,000.
In the week ahead, investors will be eyeing Thursday’s U.S. data on manufacturing orders, as they attempt to gauge the strength of the U.S. recovery, while Canada is to release government data on retail sales.
Ahead of the coming week, Forexpros has compiled a list of these and other significant events likely to affect the markets.
Monday, May 21
Markets in Canada are to remain closed for the Victoria Day holiday.
Tuesday, May 22
The U.S. is to release industry data on existing home sales, a leading indicator of economic health.
Wednesday, May 23
Canada is to release government data on retail sales, the leading indicator of consumer spending, which accounts for the majority of overall economic activity.
Also Wednesday, the U.S. is to produce government data on new home sales, a leading indicator of economic health, as well as data on crude oil stockpiles. This data can be a big market mover for the Canadian dollar, due to the size of the country’s energy sector.
Thursday, May 24
The U.S. is to release official data on core durable goods orders, as well as a report on initial jobless claims, both leading indicators of economic health.
Friday, May 25
The U.S. is to round up the week with revised data from the University of Michigan on consumer sentiment and inflation expectations.
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