Should Canadian Traders Be Buying Or Selling Gold?

The Canadian Dollar and EuroUSD are both currently moving towards the support levels at the opening of each day. USDCAD and AUDUSD implied volatility has risen to 7.7 percent and 6.2 percent respectively as currency investors gear up for a possible spot market price movement in reaction to a myriad of economic and financial news tomorrow. Canadian GDP figures have also been released, which have the potential to further weigh on the Canadian dollar while China’s new consumer price index figures are expected to influence its exchange rate and its currency trade deficit. These factors combined with the expected release of US Federal Reserve interest rate data is likely to result in an increase in Canadian USD/USDCAD when markets open tomorrow.

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Meanwhile, global financial markets are also expected to remain quiet this Friday due to the U.S. Thanksgiving holiday as traders prepare for weekend business. However, the recent Chinese trade surplus of $32 billion is likely to fuel the Canadian dollar to move upwards as investors look to hedge against the possibility of further economic and political turmoil in the U.S. and the global economy.

If the US Federal Reserve releases its GDP report next week and finds that U.S. GDP growth continued to accelerate in April, which could mean a slightly stronger US dollar, or if Canada reports an unexpectedly strong first quarter, which could imply an even stronger Canadian dollar. However, analysts believe that the Fed will wait until after the Thanksgiving holiday to release its quarterly report and it will be too early to forecast how investors will react to today’s events.

In Canada, there is no doubt that global economic news will continue to affect the country’s economy. Recent job gains are likely to boost employment numbers and boost corporate earnings, but some economists doubt whether the employment figures will be as robust as expected. In fact, some experts argue that the number of new jobs created is probably much lower than the government and private sector have reported due to the downturn in the energy sector and the decline in oil prices.

In a trading environment that sees the USDCADUSD strengthening against all major currencies, the Canadian dollar may find itself being pressured by the EURUSD and GBDCAD against the USDCAD. As the USDP’s GDP report is released at the same time as the Canadian GDP report the two are expected to move in tandem and provide some support to the Canadian dollar as it moves above the current levels and makes for a more attractive trading environment.

While the EURUSD’s strength is mainly supported by higher U.S. interest rates, the impact from the UK’s decision to exit the European Union is likely to be mitigated as the weaker pound is expected to offset the increased risk associated with a stronger U.S. Dollar. Meanwhile, if the U.K. remains on course to leave the EU, a weaker pound will make the U.S. Dollar more attractive and will provide more support for the Canadian Dollar. Meanwhile, the recent rise in the Eurozone’s Euro is also expected to support the EURUSD and the Canadian dollar against the Euro, which should benefit the Canadian dollar and the GBDCAD.

In order to reduce the potential for negative impacts on the Canadian Dollar, Canadian forex traders may want to take advantage of the fact that many of the major financial and economic reports that will be released next week will be released through the media ahead of time. For instance, the Bank of Canada’s rate outlook will be released the day before the Bank of Japan releases its quarterly base case inflation report.

While currency markets have become more volatile recently and spot movements may not be as significant as in years past, the underlying data and fundamentals still favor the CADUSD. With a strong employment outlook and a continued increase in business investment, Canadian businesses can be confident that they can weather the storm of economic news and continue to provide solid profits. The U.S. economy is expected to continue to slow down and the U.S. dollar will remain weak until the end of the year, giving Canadian companies the chance to make headway in the global marketplace. Canadian consumers can continue to enjoy attractive savings rates and more reliable interest rates.