The Loonie, in a Run for Ransom
31.01.2020, 12:36

The Loonie, in a Run for Ransom

The Canadian Dollar lost more than 2% in January, legging it to its strong resistance border of 1.3230 to1.3270. There are several reasons that could contribute to such a harsh slide. The Canadian economy is struggling. The annualised GDP in the fourth-quarter of 2019 - which is yet to be released - is expected to replicate the year's third-quarter, which was at 0.3%, much less than 0.9%, where the GDP stood in the second-quarter of 2019. The unemployment rate in December 2019 remained high at 5.6%, slightly below the 5.9% level, which was recorded in November, but above the September and October figures of 5.5%.

The Loonie has suffered after the Bank of Canada (BoC) released its pessimistic statement regarding its economic outlook. The BoC's Governor, Stephen S. Poloz, admitted that uncertainty remains elevated within the Canadian economy itself, adding that "we also received a string of disappointing readings related to the Canadian consumer. Vehicle sales, retail sales more generally, consumer confidence and job growth all softened". The fall in oil prices - a major Canadian export -, may have geared the Loonie to decline further. WTI crude plunged from $65 per barrel at the begging of January to $52 by the end of the month, perhaps due to fears of a sluggish demand for oil amid the virus outbreak in China. However, oil prices have halted recently after the World Health Organisation (WHO) praised the efforts of officials in Beijing for tackling the decease. The WHO recommended that no restrictions on travel and trade are needed, although, the organisation declared that the coronavirus constitutes a public health emergency of international concern.

The Organisation of the Petroleum Exporting Countries (OPEC) said it could hold a meeting in February ahead of the one scheduled for March, due to the sharp drop in oil prices. Amid global uncertainty, WTI crude futures are resting above their support levels of $51.6 per barrel, an October 2019 low.

Technically speaking, USD/CAD has run up to its resistance border. There may be a decent possibility this border might hold the Loonie and redirected USD/CAD towards its main downtrend. The closest targets for the Canadian Dollar in this case may be at 1.3100 to1.3150 against the US Dollar. Alternatively, if the USD/CAD continues to climb, breaking through the resistance, the technical picture suggests that the USD/CAD may rise to 1.3300.


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