By FX Empire.com
The USD/CAD pair extended its drop last week for a fourth consecutive week amid rising optimism in markets after EU leaders agreed on plans to support Greece and ease the euro zone debt crisis, which boosted demand for higher yielding assets, leading the Canadian dollar to rise as a result, especially as commodities including crude oil prices gained as well, which provided the CAD with strong bullish momentum that pushed the USD/CAD pair further to the downside.
The USD/CAD pair though fluctuated heavily throughout last week, as the Bank of Canada left the benchmark interest rates unchanged at 1.00% in line with projections, however, the BOC signaled it could cut interest rates over the coming period, as the BOC revised their growth projections lower for 2011 and 2012, while also expecting inflation rates to ease to 1% by mid 2012 before rising back in 2013, which fueled projections that the BOC could cut its interest rates as soon as the next meeting, and that put downside pressure on the Canadian dollar earlier in the week. Nonetheless, the huge wave of optimism that spread through global markets as a result of the EU debt deal provided the CAD with huge bullish momentum to rise back against the USD.
The highly anticipated EU summit revealed the plans to ease the euro zone debt crisis, which included pledging more support to Greece in addition to agreeing 50% in writedowns to Greek debt, increasing the size of the European Financial Stability Facility EFSF to 1 trillion through leveraging of 4 to 5 times.
The EU deal was highly welcomed by participants around global markets, while data from the United States provided mixed results, where on one hand the Gross Domestic Product advanced estimate for the third quarter showed the U.S. economy expanded by 2.5%, following the prior expansion of 1.3% in the second quarter, while the income report showed personal income remained weak in September, while personal spending improved in line with projections, and the Fed’s favorite gauge for inflation, Core PCE showed inflationary pressures eased in September.
Meanwhile, important fundamentals will be released from all around the globe next week, where the focus next week will turn to Europe’s inflation rates, in addition to the European Central Bank’s rate decision, where the ECB is expected to leave the benchmark interest rates unchanged at 1.50%.
As for the United States, the week is full of important economic fundamentals, where the FOMC rate decision is expected to dominate the highlights early in next week, where some analysts argue that the Fed could embark on another round of quantitative easing, although majority in markets believe the Fed will keep the current monetary policy unchanged. Traders will be also eyeing the Fed’s Chairman Ben Bernanke, as he will deliver the Fed’s latest projections on economic growth, unemployment, and inflation.
Meanwhile, Canada will release the GDP and jobs reports this coming week, and we should expect the USD/CAD pair to fluctuate accordingly.
After that the attention will turn to the infamous jobs report from the United States, where U.S. employers are expected to add 100,000 jobs in October, compared with the prior increase of 103,000 jobs back in September, however, unemployment is still expected to remain unchanged at 9.1%, since the current rate of job growth remains insufficient to reduce unemployment rates.
Moreover, traders will be also eyeing the G20 meeting on Thursday and Friday, where the G20 delivered a strong statement at their previous meeting, as they committed more efforts to support EU leaders in finding a solution to the euro zone debt crisis.
If optimism persists in markets, it could push the USD/CAD pair further to the downside, but the outcome of the EU summit will be the major market mover. We should also note that the Bank of Canada will announce its decision on interest rates amid expectations the BOC will leave rates unchanged. Overall, we expect high volatility levels to continue to dominate markets next week, and accordingly, we could see the USD/CAD pair fluctuating heavily throughout next week.
Highlights for this week that will probably affect the USD/CAD pair’s direction are:
Monday October 31:
Canada will release the industrial product price index for September at 12:30 GMT, where the index is expected to rise by 0.1% following the prior rise of 0.5% in August, while the raw materials price index is expected to drop in September by 2.4% following the prior drop of 3.2% in August.
Canada will also release the Gross Domestic Product estimate for August, where GDP is expected to expand by 0.2%, compared with 0.3% in July, while compared with a year earlier GDP is expected to expand by 2.2%, compared with 2.3% in the prior estimate.
The United States will join the session with the Chicago purchasing manager at 13.45 GMT, with expectations that the indicator could have retreated to 59.0 from 60.4 in October.
Tuesday November 01:
The United States will start the day at 14:00 GMT with the construction spending figures for September, with expectations that the index will expand by 0.3% from the previous 1.4% expansion.
The ISM manufacturing will also be released at 14:00 GMT, where the indicator is expected to show improvement to 52.3 from 51.6 in October.
Wednesday November 02:
The United States will join the session at 12:15 GMT with the ADP employment change for October, as employment is expected to increase by 101 thousand jobs from 91 thousand.
At 16:30 GMT the United States will release the FOMC rate decision, with expectations for a steady rate of 0.25%.
At 18:15 GMT, the Fed’s Chairman Ben Bernanke will speak at a Fed Conference to discuss the latest projections and outlook for the U.S. economy.
Thursday November 03:
The United States will start the day at 12:30 GMT with the nonfarm productivity for the third quarter in a preliminary reading, which is expected to expand by 2.5% from the prior drop of 0.7%. In addition, the unit labor costs for the same period is expected to drop by 0.4% from the previous expansion of 3.3%.
The United States will also provide markets with the initial jobless claims (October 28), which was 402 thousand in last week.
At 12:45 GMT the European Central Bank will announce interest rates, which is expected unchanged at 1.50%.
At 14:00 GMT theUnited Stateswill release the ISM non-manufacturing composite for October, which could have improved to 54.0 from 53.0.
Moreover, the United States will release the factory orders index for September, with expectations for 0.1% further drop from the previous 0.2%.
Friday November 04:
Canada will release the jobs report for October at 11:00 GMT, where the unemployment rate is expected to remain unchanged at 7.1% in line with the prior estimate, and the net change in employment is expected to increase by 20.0K jobs in October, compared with the prior rise of 60.9K jobs in September.
Canada will release the building permits for September at 12:30 GMT, where building permits fell by 10.4% in August.
At 12:30 GMT theUnited Stateswill join the session with the monthly jobs report for October, where the change in nonfarm payrolls is expected at 100 thousand new jobs from 103 thousands in September. In addition, the unemployment rate is expected unchanged at 9.1%.
Canada will release the Ivey PMI for the month of October at 14:00 GMT, where the Ivey PMI is expected to ease to 54.5 from the prior estimate of 55.7 back in September.
See what are the upcoming financial event on the FX Empire Economic Calendar now.
