Canadian Dollar Primed To Outperform Struggling AUD, EUR, NZD

By Christopher Vecchio, Currency Analyst

Fundamental Forecastfor Canadian Dollar: Neutral

The Canadian Dollar struggled this past week as some disappointing US data alongside a commodities’ liquidation dragged the high beta currency to its lowest level against the US Dollar since January 16. Yet the Canadian Dollar wasn’t the worst performer, and that says a lot in this current risk landscape. In fact, the Canadian Dollar has a lot going for it right now: an improving housing sector; a strengthening labor market; and above all, a hawkish Bank of Canada.

However, given the Euro-zone crisis and the disappointing Chinese growth story, the Loonie, has been susceptible to losses. And herein lays the Loonies’ loony dilemma: is it going to take cues off of its strong fundamental backdrop or the weak global one? Given this, we hold a neutral bias for the Loonie in the periods ahead; but specifically, bullish against the AUD, EUR, GBP, and NZD; and weaker against the JPY and USD.

In terms of data due out in the coming week, Wednesday is the only day will prints set for release. At 12:30 GMT, Leading Indicators for April and Retail Sales for May are due, and on the collective, they are expected to show a stronger Canadian economy. Leading Indicators are expected to show growth of 0.4 percent, but this will represent a slight slowdown from the 0.5 percent reading in March.

On the other hand, Retail Sales are poised to show growth, with a Bloomberg News survey showing a 0.4 percent gain from a 0.2 percent contraction in April. Additionally, when discounting automobile sales, retail sales growth is expected to remain steady at 0.5 percent in May, unchanged from April. Assuming these prints come in at the forecasts, then the Canadian Dollar will be insulated against further declines in an increasingly risk-averse environment.

Amid growing concerns across the globe, rateexpectations have fallen a bit from the Loonie, which hascontributed to its downfall. Whereas the market was pricing in a26.8 percent change of a 25.0-basis rate hike on May 11,expectations dipped to 14.0 percent today. However, when we examinethe number of basis points being priced into the Canadian Dollarover the next 12-months, the Credit Suisse Overnight Index Swapsshow that the Loonie has the most amount of bps being priced ingoing forward; this is supportive. In an atmosphere in which globalgrowth prospects are being clobbered and the European currencieslook vulnerable to the sovereign debt crisis, it is expected thatthere will be strong demand for safety; but, due to theaforementioned reasons, we believe that the Canadian Dollar shouldremain resilient, and while facing downside pressure against theJapanese Yen and the US Dollar, it is primed to gain elsewhere. Itis for this we are neutral on the Canadian Dollar in the weekahead. CV
DailyFX is the forex news and research arm of FXCM, Inc (NYSE: FXCM), which provides currency trading and brokerage services and is an advertiser on TheStreet websites. Any opinions, news, research, analyses, prices, or other information is provided as general market commentary, and does not constitute investment advice. Dailyfx will not accept liability for any loss or damage, including without limitation to, any loss of profit, which may arise directly or indirectly from use of or reliance on such information. Currency trading involves significant risk of loss. Individual authors may hold positions in the currencies discussed in the article.

Original Article: http://www.dailyfx.com/forex/fundamental/forecast/weekly/cad/2012/05/18/Canadian_Dollar_Primed_to_Outperform_Struggling_AUD_EUR_NZD.html

DailyFX is the forex news and research arm of FXCM (NYSE: FXCM), which provides currency trading and brokerage services and is an advertiser on TheStreet websites. Any opinions, news, research, analyses, prices, or other information is provided as general market commentary, and does not constitute investment advice. Dailyfx will not accept liability for any loss or damage, including without limitation to, any loss of profit, which may arise directly or indirectly from use of or reliance on such information. Currency trading involves significant risk of loss. Individual authors may hold positions in the currencies discussed in the article.

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