Canada Markets

The Canadian dollar has failed to attract buying interest amid a number of unsupportive data releases, trading close to one cent lower today to move below $.83 CAD/USD while there's already talk that the $.82 level may be challenged on Wednesday. Canada's major banks have been busy scrapping forecasts made for 2015 in the first two weeks of 2015 as this market has already fallen below the projections that some held for the entire year.

Weak data contributing to today's weakness includes but is not limited to:

-- Statistics Canada reported on Tuesday weak manufacturing data for November, with sales down 1.4% to $51.5 billion, below pre-report expectations of economists and the third drop in four months. Canada's weak dollar combined with superior economic performance in the U.S. has economists expecting the manufacturing sector to benefit but this has yet to materialize.

-- The International Monetary Fund lowered its 2015 growth projections for both Canada and the world in today's releases. Canada's growth expectations were reduced .1% to 2.3% while the global growth expectation has been lowered .3% to 3.5%.

-- China's growth rate for 2014 has been pegged at 7.4%, below Chinese government projections of 7.5% and the slowest growth rate recorded in 24 years. Export currencies such as Canada's dollar will face weakness on this data.

-- The weaker energy trade is a drag on Canada's economy and currency, with crude oil down $2.30 to $46.39/barrel in Tuesday's trade and rhetoric from the Middle East suggesting the possibility of further weakness to come.

In addition, the Bank of Canada will release its monthly report on Canada's inflation and monetary policy Wednesday. It is widely expected that Canada's overnight lending rate will be left unchanged at 1% where it has been since September 2010. While the chances of an interest rate hike are becoming increasingly remote given challenges faced within Canada's economy, one U.S. bank, Morgan Stanley, has placed odds at 33% that Canadian interest rates will instead be cut, which would further erode the value of the Canadian currency relative to the U.S. dollar.

The attached weekly chart, which provides a longer-term perspective, shows the current exchange rate below major technical support levels. Weekly lows from April 2009 at $.8171 CAD/USD, and lows of $.8025 and $.8026 CAD/USD which are also from April 2009 may be some of the next levels tested.

Of interest is the net-short position held by non-commercial traders or investors, which has grown over each of the past three weeks to 21,179 contracts, the largest short position held in nine weeks. Despite investors being bearish, this position is still far from the largest weekly net-short position held in 2014 of 70,327 contracts and the largest weekly net-short position in 2013 of 75,913 contracts.

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Cliff Jamieson can be reached at cliff.jamieson@dtn.com

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