Outlook and Recommendation

Recent Canadian economic indicators have been mixed, but remain consistent with an economy at the turn of the year that was expanding around a modest 2% pace. Improving US consumer and manufacturing activity is supporting a revival in industrial production and exports. In particular, stronger-than-expected North American vehicle sales have prompted automakers to schedule a further increase in auto assemblies in early 2012. Nonetheless, the persistent   strength of the Canadian dollar combined with the subdued pace of growth in the US - still the destination of over 70% of Canada's international shipments - will remain significant hurdles to a faster export recovery.

Consumer confidence has inched up this year The Canadian dollar (CAD) is up only 0.7% vs. the USD in February, underperforming most majors. The movement in the CAD has been relatively limited and has centered around parity while also flirting with the 200 day moving average. Similar to most currencies, CAD gains have been the result of USD weakness due to the extensive amounts of liquidity provided by global central banks. We anticipate that the CAD will continue to benefit from international investment diversification flows given its relatively strong sovereign fundamentals, considering the continued focus on credit ratings in the current environment. Canada's fiscal and debt metrics are better than most of its developed country peers, with the exception of Australia, and there is a firm commitment to returning to a government surplus within the next five years. In terms of economic data, they remain mildly bullish given that Canada saw the majority of its gains in economic activity front-loaded in the current cycle.

Investor sentiment indicators are bullish USD/CAD. On the global front we anticipate strong emerging market growth, with a soft landing expected in China, which should support growth sensitive currencies like the CAD. Periods of risk aversion will continue to drive short-term drops in CAD, and downside risks to the global financial system remain below the surface despite central bank action; however, the potential for significant downward movement is limited and the longer-term trend remains bullish CAD. The forecast the CAD to end Q1 2012 at 0.98. The Looney should end the first quarter trading in the same range holding close to the 99.00-98.00 range

 

Central Bank

The Bank of Canada pulled forward its projection for the closing of the output gap to 2013Q3; but, a week later, the Fed said that rate hikes aren't likely until at least late 2014. The Bank will remain comfortably on hold through 2012 and much of 2013; but, if the Monetary Policy Report projection and Fed expectations stay unchanged, 2013 will be an interesting year for Policymakers.

Official Rate: 1.00% • Quantitative Easing: No • Last Decision: January 17, unch • Next Decision: March 8, Hold

Historic Chart

width=710 

March Major Economic Events

country

date

name

forecast

previous

Canada

20120306 15:00:00

Ivey Purchasing Managers Index

62.3

55.7

Canada

20120308 13:15:00

Housing Starts s.a (YoY)

198.0K

197.9K

Canada

20120309 12:00:00

Unemployment Rate

7.60%

7.60%

Canada

20120309 12:00:00

Net Change in Employment

13.9K

2.3K

Canada

20120321 12:30:00

Leading Indicators (MoM)

 

0.70%

Canada

20120322 12:30:00

Retail Sales (MoM)

 

-0.20%

Canada

20120323 11:00:00

Bank of Canada Consumer Price Index

 

0.20%

Canada

20120323 11:00:00

Bank of Canada Consumer Price Index

 

2.10%

Canada

20120323 11:00:00

Consumer Price Index (MoM)

 

0.40%

Canada

20120323 11:00:00

Consumer Price Index (YoY)

 

2.50%

 
 
 
 
 

USA

20120309 13:30:00

Nonfarm Payrolls

207K

243K

USA

20120309 13:30:00

Unemployment Rate

8.30%

8.30%

USA

20120313 19:00:00

FOMC Minutes

 
 

USA

20120316 12:30:00

Consumer Price Index (YoY)

 

2.90%

USA

20120316 12:30:00

Consumer Price Index Ex Food & Energy (YoY)

 

2.10%

USA

20120329 13:30:00

Gross Domestic Product Annualized

 

1.80%

USA

20120329 13:30:00

Gross Domestic Purchases Price Index

 

2.60%

USD/CAD Pivot Points (Time Frame: 1 Day)

 

Name S3 S2 S1 Pivot R1 R2 R3

Classic
0.9829
0.9844
0.9868
0.9883
0.9907
0.9922
0.9946

Fibonacci
0.9844
0.9859
0.9868
0.9883
0.9898
0.9907
0.9922

Camarilla
0.9882
0.9885
0.9889
0.9883
0.9896
0.9900
0.9903

Woodie's
-
0.9846
0.9873
0.9886
0.9912
0.9924
-

DeMark's
-
-
0.9915
0.9887
0.9876
-
-