By FXEmpire.com

Introduction: The Canadian Dollar moves in reaction to the US Dollar. Movements are small and easy to track and trade. The Canadian Dollar also responds to economic reports within Canada. It has little action against foreign currencies except during major moves or crisis.

The USD/CAD is the single biggest beneficiary of rising oil prices. Canada which is already the biggest exporter of oil to the US will experience a boost to its economy when oil price continue to increase. Therefore, if oil rises the Canadian dollar is likely to follow. Over the past years, the correlation between the Canadian dollar and oil prices has been approximately 81%.

Weekly Analysis and Recommendation:

The USD/CAD ended the week at 0.9806 as the USD lost momentum after the negative GDP report showed that growth had slowed to 2.2% from a forecast of 2.5%. Investors are beginning wonder if this is the repeat of the spring stall seen over the last three years.

Date

Last

Open

High

Low

Change %

Apr 27, 2012

0.9806

0.9858

0.9870

0.9800

-0.55%

Apr 26, 2012

0.9860

0.9826

0.9865

0.9806

0.35%

Apr 25, 2012

0.9826

0.9870

0.9880

0.9824

-0.45%

Apr 24, 2012

0.9870

0.9912

0.9929

0.9868

-0.42%

Apr 23, 2012

0.9912

0.9932

0.9979

0.9906

-0.20%

Canadian markets have been a bee-hive of activity over the past couple of weeks as markets have aggressively pulled forward rate hike expectations. We feel much of this has gone too far and represents bets made by large hot money accounts on relative global plays that swamp the modest size of the Canadian market. A reality check may land on Monday when February monthly GDP lands as we expect growth of only 0.1% m/m at a non-annualized pace. Assuming a flat March in order to focus on the impact of what we know in terms of the Q4 hand-off and Q1 so far, we’re tracking 2.1% annualized growth in the Canadian economy. We expect additional growth in March, and believe that the monthly GDP figures will not adequately capture the role of very strong inventory investment such that the quarterly GDP accounts will come in stronger than the monthly add-up. See pages 7-9 for our thoughts on why a very strong inventory distortion could make for added volatility in quarterly growth figures and thus complicate the picture for those expecting summertime rate hikes. Canada also conducts a 10-year note reopening on Wednesday.

Major Economic Events for the past week actual v. forecast

CAD

Core Retail Sales (MoM)

0.5%

1.0%

-0.8%

USD

New Home Sales

328K

320K

353K

GBP

GDP (QoQ)

-0.2%

0.1%

-0.3%

GBP

GDP (YoY)

0.0%

0.3%

0.5%

USD

Core Durable Goods Orders (MoM)

-1.1%

0.5%

1.9%

USD

Interest Rate Decision

0.25%

0.25%

0.25%

NZD

Interest Rate Decision

2.50%

2.50%

2.50%

USD

Initial Jobless Claims

388K

375K

389K

USD

GDP (QoQ)

2.2%

2.5%

3.0%

Historical:

Highest: 1.0842 CAD on 01 Nov 2009.

Average: 1.0147 CAD over this period.

Lowest: 0.9435 CAD on 26 Jul 2011.

Economic Highlights of the coming week that affect the American and Canadian Markets.

Mon

Apr 30

8:30am

CAD

GDP m/m

0.2%

0.1%

Tue

May 1

10:00am

USD

ISM Manufacturing PMI

53.0

53.4

Wed

May 2

8:15am

USD

ADP Non-Farm Employment Change

179K

209K

Thu

May 3

8:30am

USD

Unemployment Claims

382K

388K

10:00am

USD

ISM Non-Manufacturing PMI

55.5

56.0

Fri

May 4

8:30am

USD

Non-Farm Employment Change

176K

120K

8:30am

USD

Unemployment Rate

8.2%

8.2%

10:00am

CAD

Ivey PMI

64.2

63.5

Upcoming Government Bond Auctions

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Originally posted here