Loonie Falls On Rate Cut Expectations

Posted by Rob

February 11, 2008

Last Friday saw a big charge for the Canadian Dollar (known to some as the Loonie), as much better than expected employment figures were released.

The Canadian Employment Change came out 36,000 above expectation which sent the USD over 90 points down against CAD. The price moved from 1.0072 to 0.9984 within the first few minute of the news report.

A Look At The Chart

The chart shows the 1-hour chart for USD-CAD. A close look at Friday shows the downward spike after the employment figures were released, favouring the Loonie.

The stochastic shows USD being well-into overbought territory, which would favour CAD strength.

Other factors such as increasing energy costs and higher oil prices would also favour a strengthened loonie.

However, Mark Carney, the latest Governor of the Bank of Canada (Banque du Canada) signalled further cuts to the benchmark interest rate.

The Governors doveish outlook suggests a slow-down in the Canadian economy. The BoC has lowered interest rates twice since December, and is looking to cut the benchmark rate further.

This has led to a fall for CAD against 15 of the 16 most-actively traded currencies. Expect further CAD downside.

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