Forex Market: USD/CAD hits one-week highs despite upbeat Canadian housing starts

The loonie, as the Canadian dollar is best known, fell to more than one-week low against its US counterpart, despite data showed today that Canadian housing starts rose at a faster-than-expected pace in February. However, loonies demand continued to be pressured after Canadian employment unexpectedly declined for the second time in three months in February, fueling concerns over the outlook of the worlds 11th largest economy.

USD/CAD touched a session high at 1.1131, after which the pair consolidated at 1.1107, adding 0.18% on a daily basis. Support was likely to be received at March 7th low, 1.0981, while resistance was to be met at February 28th high, 1.1147.

The Canadian Mortgage and Housing Corporation reported today that nations housing starts rose at an annualized pace of 192 100 units in February, up from 180 100 units in the previous month and exceeding analysts expectations for an increase to 185 000 units.

However, loonies demand continued to be pressured, after data showed on Friday, Canadian employers eliminated jobs in February, fueling speculation Bank of Canada may have to cut borrowing costs to spur economic growth. Canadian employment unexpectedly declined for the second time in three months in February, led by a drop in government workers.

Statistics Canada reported on Friday that nation’s employment fell by 7 000 last month, defying analysts’ projections of an increase by 15 000 and after a 29 400 increase in January. At the same time, the unemployment rate was unchanged at 7% in February, in line with analysts’ estimates and matching January’s reading. However, more Canadians left the workforce, as the corresponding participation rate declined to 66.2% last month, the weakest level since December 2001.

The Canadian public sector employed 50 700 less workers in February, while private companies hired 35 200 more people, data from the report showed. The government fired workers as the Canadian Ministry of Finance is struggling to eliminate a budget deficit.

The weakness of the labor market may threaten consumer spending, which was the main source of growth for the 11th largest economy, since the start of the Global Financial Crisis.

Last week, Bank of Canada kept its main interest rate unchanged at 1%, where it has remained since September 2010, citing weak exports and investment. The central bank also said the economy may slow its pace in the first quarter.

The loonie weakened to more than four-year low of 1.1224 against the US dollar on January 31st, after the central bank said earlier in January the Canadian currency was still too strong and was hurting exporters. This came after December’s statement, which warned inflation rate may stay below Bank of Canada’s 2% target for a prolonged period of time, fueling speculation the central bank may cut interest rates.

Meanwhile, greenback’s demand was supported on Friday after the Bureau of Labor Statistics in the US reported that nation’s employers managed to add 175 000 workers to payrolls in February, after a revised up 129 000 increase in the previous month. Analysts had expected a 149 000 advance in February. At the same time, the unemployment rate unexpectedly rose to 6.7% last month from a 5-year low of 6.6% as more Americans entered the workforce, but couldn’t find a job. The US added 194 000 jobs on average, each month last year.

The report suggested that US employers were upbeat about the economic outlook, after recent winter storms and much-below-normal temperatures across the US and especially across the eastern parts of the country, slowed consumer spending, housing and manufacturing.

“The fundamentals are good,” Joe LaVorgna, chief U.S. economist at Deutsche Bank Securities Inc. in New York, commented in a Bloomberg interview before the report. “Faster job growth means faster income and more discretionary spending. Ultimately, with more business spending, not only will they hire more people, they’ll hire more capital. Everything becomes self-reinforcing.”

At the same time, the deficit on United States’ trade balance widened insignificantly to reach 39.1 billion USD in January, after in December the deficit figure has been revised to 38.975 billion USD from 38.701 billion USD previously. Analysts had anticipated a deficit at the amount of 38.500 billion USD in January.

Factors behind this wider deficit have been the weaker fuel export and the increased import of oil. A larger trade deficit usually causes an adverse impact upon economic growth. Imports rose 0.6% to reach 231.6 billion USD in January, while overall export increased also by 0.6% to reach 192.5 billion USD during the same month.

Elsewhere, EUR/USD hit a session low at 1.3867 at 11:27 GMT, after which the pair trimmed daily losses to trade little changed at 1.3882 at 12:35 GMT, adding 0.03% for the day. Support was likely to be found at March 7th low, 1.3852, while resistance was to be encountered at March 7th high, 1.3915, also the pair’s strongest since October 2011.