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Canadian Dollar looked set to finish the week higher against the greenback as oil pared early losses and GDP data released by Statistics Canada beat estimates.
With no data coming out until Friday, the Loonie has taken its cue from oil prices for most of this week. In general, the pair USDCAD has been in a bearish mood after the Organization of the Petroleum Exporting Countries reached a preliminary accord to reduce production on Wednesday, not to mention prolonged decline in U.S crude inventories.
Although the deal will not be finalized until the formal meeting of OPEC members on November 30th, oil is trading around three-week highs amid prospects that OPEC would re-establish an output ceiling in the range of 32.5-33.0 million bpd. This was the first time that the cartel reached an output freeze agreement since 2008.
Russian Energy Minister Alexander Novak said on Friday that Russia will find mechanisms and instruments needed to freeze oil production should the country reach an agreement with the OPEC on limiting output.
Speaking on the sidelines of a business forum in the Black Sea resort of Sochi, Minister Novak also stated that a delegation from Iran’s energy ministry will visit Russia in October-November to present potential oil deals to Russian companies.
Adding to the support for the Canadian dollar, Statistics Canada from Ottawa announced that the country’s gross domestic product expanded by 0.5% in July from the prior month. The pace of growth was faster than expected, led by a 5% increase in the energy industry.
However, the economy is still facing challenges on its way to recovery after the slump in commodity prices, retail sales, the slowdown in manufacturing sales and an increasing unemployment rate. Today’s report marks the first time that Canada’s GDP has grown for two consecutive months since the start of this year. Bank of Canada Governor Stephen Poloz said on Monday that it would take three to five years for the economy to entirely recover.
In the U.S, consumer spending was little changed in August, data from the Commerce Department showed on Friday. Household purchases stood still for the first time since January, following a run of strong gains in previous months, as income grew at the slowest pace since February.
The Federal Reserve’s favorite inflation gauge picked up in August. The measure of inflation based on personal consumption expenditure rose 0.1% from the previous month, which was in line with expectations. On a yearly basis, the PCE index was up 1 percent. The core prices measure, which strips out food and fuel, increased 0.2% compared to July and inched up by1.7 percent compared to August 2015, but still remaining under the Fed’s 2 percent goal since 2012.
Investors are eyeing additional economic reports due later in the day including Consumer Sentiment and Inflation Expectations for September by University of Michigan.
The U.S dollar retreated a little after surging earlier on Friday as investors flocked into safe-haven assets to hedge against risks caused by the Deutsche Bank case. However, global markets seem to have stabilized after the U.S session has gotten underway. The German bank’s U.S.-listed shares were up nearly 5% in pre-market trading, after collapsing on Thursday, helping ease the panic driven sentiment in the market.
Fig: USDCAD H4 Technical Chart
USDCAD bounced back from the support formed by connecting high lows since September 07. However, the downtrend is expected to resume soon as sellers are overshadowing the market, which has been visible in the long upper shadows of recent candles. A breakout is much likely to show up today as the two MAs are placed above the price action, combined with the stochastic lines that are heading downwards.
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