USD/CAD Struggles for Direction Amid Oil Rebound, Disappointing Manufacturing Sales

The Canadian dollar is struggling for direction against its US counterpart on Tuesday, with the loonie finding support from a rebound in crude oil prices after enduring disappointing manufacturing numbers. The Canadian dollar has been trading relatively flat in the first few weeks of the calendar year. Could it be a flat first quarter for the loonie?

According to Statistics Canada, manufacturing sales slumped 0.6% in November, lower than the market forecast of -0.1%. This represented the first drop in three months, led by a drop in transportation equipment, aerospace technology, and motor vehicles. In October, manufacturing sales rose 0.3%.
In November, wholesale sales jumped 0.7% to a record high of $67.4 billion, buoyed by machinery, equipment, and building materials. Researchers note that this reflected greater domestic sales of Canadian goods amid sliding imports and exports of crucial commodities.
On Monday, housing starts clocked in 228,300 in December, down from 259,900 in November. The median estimate was 227,000.
Meanwhile, foreign investors purchased $11.78 billion of Canadian securities in November, while Canadian purchases of foreign securities slipped to $7.58 billion in the same month.
This will be a big week for data and economic news. Inflation, retail sales, and housing prices data will be released. Plus, the Bank of Canada (BoC) will host its first monetary policy meeting of 2021, where it is expected to leave interest rates unchanged at 0.25%.
A new Reuters poll was released ahead of the meeting, highlighting that the survey of economists expects a major roadblock for the Canadian economy in the first quarter of 2021. The poll predicted that the gross domestic product (GDP) would climb just 0.7% in the January-to-March period. But the same survey found that experts forecast the GDP would reach pre-pandemic growth levels within a year.
Ksenia Bushmeneva, an economist at TD, said of the survey:

With cases and hospitalizations surging across Canada, the second wave of the pandemic threw a bucket of cold water on the economic recovery. Many businesses already weakened by the first bout of the crisis will find it harder to survive the second wave.

While the eventual ramp up in vaccine distribution offers hope of a strong economic rebound in the second half of the year, the economy is entering 2021 on a wobbly footing and could suffer a modest contraction in the first quarter.

Crude oil prices rebounded on Tuesday after prices slid below $51 in recent sessions. February West Texas Intermediate (WTI) crude futures picked up $0.43, or 0.82%, to $52.79 per barrel at 12:52 GMT on Tuesday on the New York Mercantile Exchange. Despite the modest drop, oil prices have soared out of the gate, advancing close to 10% so far this year.
Since Canada maintains a current account deficit, its economy relies on exports for growth. Oil and gas remain the nation’s top exports, so any price change can impact the loonie and the broader economy.
The Canadian bond market was mostly in the green on Tuesday, with the benchmark 10-year bond edged up 0.013% to 0.823%. The one-year note was unchanged at 0.13%, while the 30-year bond jumped 0.019% to 1.456%.
The USD/CAD currency pair rose 0.02% to 1.2761, from an opening of 1.2760. The EUR/CAD advanced 0.43% to 1.5476, from an opening of 1.5410.
If you have any questions, comments, or opinions regarding the Canadian Dollar, feel free to post them using the commentary form below.

Original from: www.earnforex.com