USD/CAD: Little Favor for the Loonie Today

The US dollar could make some headway versus the Canadian currency after economic reports today showed weakness. The Loonie edged the Greenback in earlier trades on demand for risk, after yields on Spanish debt auction yielded higher after reaching above the top end of the target range. However, looming automatic government spending cuts in the US suggest the need for safety, while Building permits in Canada failed forecasts of a rebound in December.

The world’s largest economy could take a big hit from automatic government spending cuts even if Congress only leaves them in place for a month or two. The Congressional Budget Office said on Tuesday the cuts would translate into $42 Billion less in federal spending between the beginning of March and the end of September. Congress has been scrambling to find a way to postpone the budget cuts, but has shown little sign of progress. In its report this week, the CBO projected that the economy would grow 1.4 percent this year if the austerity measures kick in. At that pace, the jobless rate would average 8 percent in the fourth quarter, just above the 7.9 percent reading from January.

According to StatsCan, “The total value of building permits issued by Canadian municipalities declined 11.2 percent to C$5.7 Billion in December, following a 14.5 percent decline in November. This decrease resulted from lower construction intentions in both the residential and non-residential sectors. December’s decline in construction intentions came from every province except Quebec, with Alberta, Manitoba and Ontario posting the largest decreases.”

With market data showing little favor for the Loonie, even prospecting demand for safety, a long position is suggested for the USDCAD today. It is still advised to keep watch for probable technical price corrections.

Aviv N. Shapiro is a Senior Research Analyst and Business Development Officer for AlgosysFx.