USD/CAD touches one-week high on speculation Canadian economic growth may slow

The loonie, as the Canadian dollar is best known, fell to the lowest level in a week against its US counterpart, as Canadian wholesale sales plunged to a 6-month low, fueling speculation the recent severe weather may have slowed the nations economic growth.

USD/CAD hit a session high at 1.1040 at 15:17 GMT, after which consolidation followed at 1.1038, adding 0.82% for the day. Support was likely to be received at January 16th low, 1.0905, while resistance was to be met at February 11th high, 1.1091.

Statistics Canada said today that wholesale sales declined 1.4% to 49.6 billion Canadian dollars ($45.3 billion) in December, in comparison with a 0.4% decrease estimated by experts. Novembers reading received downward revision to a 0.2% drop.

The eastern parts of Canada were hit by a severe ice storm in December, which caused power outages and left thousands of homes in Ontario, Quebec and the Atlantic provinces without electricity.

According to Bank of Montreal chief economist Doug Porter, cited by Bloomberg, the Canadian gross domestic product probably shrank in December because of the storm.

The Canadian economy is struggling to recover from an almost two-year slowdown and the latest reported data did show that the economy grew at an annualized 2.7% pace in the third quarter. However, economists surveyed by Bloomberg News predict that growth slowed to 2.5% in the fourth quarter, ahead of Statistics Canada quarterly GDP report, scheduled to be released on February 28.

Meanwhile, greenbacks demand was supported after data showed producer price inflation and core producer price inflation in the US rose more than expected in January. However, a separate report revealed the number of building permits issued in the country declined last month more than experts projected, adding to concerns over the strength of the US economy.

A report by the US Commerce Department revealed that producer prices increased 0.2% in January, exceeding analysts expectations for a 0.1% gain and after rising 0.1% in the previous month. On annual basis, the producer price index advanced at an annualized rate of 1.2% last month, matching analysts forecasts and after Decembers reading of the index was downward revised to 1.1%.

Core producer prices, which exclude the volatile food and energy categories, rose 0.2% in January, outstripping analysts projections for a 0.1% advance and after the index increased 0.3% in the previous month. On year-over-year basis, core producer prices increased at an annualized pace of 1.3% last month, trailing analysts projections for a 1.4% advance and after a downward revised reading of 1.2% in December.

The US Commerce Department reported today that housing starts declined 16% to an 880 000 annualized rate in January, after Decembers upward revised 1.05 million. The drop was the largest since February 2011. Analysts had expected that housing starts will drop to 950 000 units. However, the number of permits for future projects registered a smaller drop, which hints activity may stabilize as the weather conditions improve.

A separate report revealed that the number of building permits fell by 5.4% to 937 000 in January, after Decembers figure was upward revised to 991 000. Analysts had projected a smaller decline to 975 000 units.

The slower-than-expected pace of US home construction can be attributed to the harsh winter and the unseasonably low temperatures, which probably played an important role in slowing projects. Construction in the Midwest declined to a record-low as the coldest January in 20 years probably limited groundbreaking. Data showed that groundbreaking in the Midwest plunged almost 68% last month to a 50 000 annualized rate, which is the weakest level in data going back to 1959.

However, for all of 2013, builders began constructing 926 700 homes, the most since 2007, when builders began work on 1.36 million homes.

Elsewhere, GBP/USD hit a session low at 1.6637 at 12:24 GMT, after which consolidation followed at 1.6646, losing 0.23% for the day. On February 17th, GBP/USD touched 1.6823, the strongest level since November 2009. Support was likely to be found at February 13th low, 1.6600, while resistance was to be encountered at February 18th high, 1.6742.