Forex - USD/CAD weekly outlook: August 8 - 12

Investing.com – Last week saw the Canadian dollar slump to a five-week low against its U.S. counterpart on Friday, as concerns the U.S. economic recovery was faltering and mounting fears over the sovereign debt crisis in the euro zone curbed demand for growth-linked currencies.

USD/CAD hit 0.9853 on Friday, the highest since June 28; the pair subsequently consolidated at 0.9818 by close of trade on Friday, climbing 2.85% on the week, the second consecutive weekly gain.

The pair is likely to find support at 0.9601, last Thursday’s low and short-term resistance at 0.9883, the high of June 28.

The U.S. Department of Labor said on Friday that nonfarm payrolls rose by 117,000 in July, above expectations for an increase of 95,000, while the previous month’s figure was revised up to a gain of 46,000 from a previously reported 18,000.

The unemployment rate dipped unexpectedly to 9.1% from 9.2%, the first decline in four months.

However, the better-than-expected data failed to ease fears that the U.S. economic recovery was stalling, after a flurry of weak data earlier in the week fuelled concerns over a possible double-dip recession.

Meanwhile, Statistics Canada said Friday that employers added 7,100 jobs in July after an increase of 28,400 in the previous month. Analysts had expected payrolls to add 20,000 jobs last month. The jobless rate unexpectedly dropped to 7.2%, the lowest level since 2008.

Elsewhere, in the euro zone, yields on Italian and Spanish bonds surged to euro-lifetime highs earlier in the week, fuelling concerns that the debt crisis could spill over to the region’s third and fourth largest economies.

The loonie was also weighed after crude oil for delivery in September traded at USD87.08 a barrel by close of trade on Friday, plunging 9.5% over the week, the biggest weekly drop since early May.

Raw materials, including oil account for about half of Canada’s export revenue.

After markets closed Friday, ratings agency Standard and Poor's downgraded the U.S. sovereign debt rating by one notch to AA+ from AAA, and kept the rating outlook at negative, suggesting a further downgrade could be possible within the next 12 to 18 months.

S&P said the debt ceiling deal reached by lawmakers to cut the federal deficit by an estimated USD2.1 trillion over a decade did not go far enough and “America’s governance and policymaking is becoming less stable, less effective, and less predictable than what we previously believed.”

In the week ahead, markets will get their first chance to react to the historic U.S. debt downgrade. Traders will also be paying close attention to Tuesday’s Federal Reserve rate announcement and its statement on monetary policy for any hints regarding further easing.

Ahead of the coming week, Investing.com has compiled a list of these and other significant events likely to affect the markets. The guide skips Monday, as there are no relevant events on this date.

Tuesday, August 9

Canada is to release government data on housing starts, a leading indicator of health in the housing industry.

Meanwhile, the U.S. is to publish preliminary data on nonfarm productivity and labor costs, which are closely linked to consumer inflation.

In addition, the Federal Reserve is to announce the federal funds rate. The announcement will be followed by the bank’s rate statement, which gives important insights into the economic conditions that influenced the rate decision.

Wednesday, August 10

The U.S. is to release a government report on the federal budget balance as well as data on wholesale inventories.

In addition, the country is to produce data on crude oil inventories, which can be a big market mover for the Canadian dollar, due to the size of Canada’s energy sector.

Thursday, August 11

The U.S. to publish official data on its trade balance, as well as a government report on initial jobless claims and natural gas stockpiles.

Canada is also to release a report on its trade balance, as well as data on new home price inflation, a leading indicator of the housing industry's health.

Friday, August 12

The U.S. is to round up the week with government data on retail sales, the primary gauge of consumer spending, while the University of Michigan is to produce preliminary data on consumer sentiment and inflation expectations.