Canadian dollar remains weak on economic growth concerns

March 31, 2016
Canadian dollar remains weak on economic growth concerns August 9, 2018 Clive Nelson

canadian dollarThe Canadian economy fared better than all other countries in the G-7 group during the 2008 economic crisis. The economy also came out of recession, faster and stronger.

The trend continued until 2013. Soon after the price of crude oil started declining, the economy went to shambles.

Over the past two months, the price of crude oil has recovered more than 40% to trade at about $40 per barrel. Reflecting the uptrend in the price of crude oil, the USDCAD pair declined.

The reason is that crude oil contributes to the majority of the Canada’s export revenue. However, lack of demand and oil glut has halted crude from rising above $40 per barrel. With a marginal recovery (considering that it has fallen from a high of $147 per barrel) in the price of crude, the Canadian companies and the economy are struggling to recover.

The low price of crude oil has forced nearly 75% of Canadian business establishments to cut jobs. Likewise, more than 50% of the enterprises have cut capital expenditures.

Even manufacturing industries, which normally benefits from low oil price was not spared. Four out of ten manufacturing industries did not experience anything positive from the decline in the price of crude oil.

The Canadian Imperial Bank of Commerce expects the economy to grow by a paltry 1.1% this year. The previous estimate was a growth of 1.7%. If the economy grows as expected, then barring Italy and Japan, it would be the lowest recorded growth among the G-7 nations. The analysts’ expect the US economy to grow at 2.2%, Britain at 2%, Germany at 1.8% and France at 1.3%. The jobless rate in the country is 7.2% and is not expected to become better anytime soon. According to the National Bank of Canada, the country could sink into a $90 billion deficit in the next four years, if the economy does not recover.

Most economists believe that a recovery in the US economy can only boost exports from Canada. Until then, the Canadian dollar is expected to remain weak against the US dollar.

Technically, the USDCAD pair has formed a bullish swan harmonic pattern on the charts. Furthermore, the main line of the MACD indicator has crossed the signal line and is rising towards the zero level. Major support exists at 1.2850, while major resistance exists at 1.3320. Thus, a trader can expect the currency pair to ascend in the weeks to come.

USD/CAD Pair: March 31st 2016

USD/CAD Pair: March 31st 2016

A Canadian forex trader should take a long position with a stop loss below the 1.2850 level. Profit can be booked near 1.3300 levels. A binary options trader can purchase a one touch call option contract with expiry date in the last few days of April. The target level for the one touch call option contract should be preferably around 1.3250.

About the Author

Clive Nelson

Clive Nelson Author

Hi, my name is Clive Nelson and welcome to Traders Bible. Just to tell you bit about myself…I have been trading FX and binary options for the best part of 10 years now. After graduating with honours in economics, I began working for an investment bank in New York as an assistant trader before working my way up. After a few years, I went on to work as a broker in London, England and then eventually came back to the U.S to work in a hedge fund, where I manage $800 million of my clients’ investments. There have been times over the course of my career where I’ve had to take a hit, but I’ve accepted that losing is part of the game, it’s a learning curve. I’ve learnt from my mistakes and you don’t have to make the same errors I did. A lot of my education came from when I was a broker and this is why I’m here to tell you that Traders’ Bible offers you the foundations of how to become a great trader.

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