Strong Canadian Dollar Rests on Growth and Oil

The Canadian Dollar follows the egg and chicken debate.  A significant plunge in world crude prices and other commodity prices would exert pressure on growth rates of big economic players.  Inversely, the price movements could be favorable to the Canadian Dollar.

Bullish Canadian Economic Outlook

The general outlook for the Canadian Dollar remains bullish.  Consumer price index marks a 3.4% high thus dampening speculations that BoC will cut interest rates.  The rally held briefly by world crude market fueled the upswing of the loonie but the market generally overlooked its reversals.

A sharp increase in world crude prices could certainly impact on the growth rates of the US economy and other big global players.  Meanwhile, a drop in prices and improvement of commodity prices would push the value of US goods upward.  Both scenarios would be valuable for the Canadian dollar.  This could be seen last Thursday when world oil prices rallied by $5 at the market.  The USD/CAD exchange immediately responded by dropping 170 points at the trading floors.  On the other hand, when the situation reversed and the USD rebounded due to decreasing oil prices, the USD/CAD exchange rates barely moved at all.

Market Bias

The situation opens itself as a good sign of obvious market bias.  The markets are increasingly looking for reasons to push the loonie upwards.  The week ahead could provide different scenarios.  Raw materials remained volatile but it could also produce the same market effects as the potential impact of a hurricane onslaught on the oil rigs off Mexico Gulf becomes evident.  The political scenario in Russia and Georgia also could exert volatility pressures but generally the market should not expect too much volatility on these areas.

Strong Economic Fundamentals

In the absence of external global event risks, fundamental economic performance should be enough to fill the void.  Current data show that the economy will experience a cross-over surplus which will be the largest in the past two and a half years.

Trade strength continued to show promise as a considerable rebound in investments could result to increasing cash flow for the economy.  The sharp increase in performance of the domestic market in terms of goods and services production will also improve the general economic outlook.  

The main impact area that will move the market to further stability is the GDP growth rates.  Canadian statistics showed that in June economic reading would be favorable through the second quarter.  During this period, businesses have generally rebounded and trade improved.  Meanwhile unemployment rose but the housing and property crisis have cooled down a bit.

Amidst this economic backdrop, officials predicted a programmed 0.5% growth annually.  This could avert any recession but the big plus is opening up more trading opportunities.