Loonie to Decline Further on Gloomy Q2 Outlook

Loonie to Decline Further on Gloomy Q2 Outlook
May 23, 2016

When oil touched a low of about $26 per barrel in January, the Canadian dollar, which is a commodity currency, plunged to a low of 0.9809 against the Singapore dollar. However, the partial recovery in the price of crude oil and the surge in the Canadian exports saw the currency reverse trend against the Singapore dollar to touch a high of 1.0748 in the last week of April. After failing to consolidate, the CADSGD currency pair started to decline again in May. On Friday, the currency pair closed at 1.0532.

The retail sales data reported by Statistics Canada showed a softer retail sales activity in March. Nationally, the retail sales contracted 1% compared to the previous month. The analysts had expected the retail sales to decline 0.6% in March. The wild fire in the Alberta oil sands region threatens to keep the economy in slumber in the second-quarter.

The inflation data gave a hope with a 1.7% rise in April and according to the expectations of analysts. However, the Central bank cautioned that the rise in the inflation is due to temporary factors. Thus, the Canadian dollar is unlikely to strengthen in the short-term.

In the case of Singapore, the economy grew only by 2% last year. Still, it is considered better when compared to the West. In the fiscal 2016 first-quarter, the economy grew at 1.8%. The recorded GDP growth was slightly above the analysts’ expectation of 1.7% GDP growth. The economy is again expected to grow between 1% and 3% in 2016.

Electronics, which contributes to 1/3rd of Singapore’s GDP, is going through a lean period. The manufacturing output contracted 6.8% in 2015. However, the services sector, which makes up 2/3rd of Singapore’s economy, recorded an impressive 3.4% growth in 2015. The sector is expected to consolidate further this year. The tourism industry continues to remain busy with an increase in the number of tourists visiting Singapore. The tourist arrivals in March increased to 1.40 million, from 1.33 million in February. On a y-o-y basis, the unemployment rate remained flat at 1.9% in the first-quarter of fiscal 2016.

To strengthen the economy, the Singapore government has announced several construction projects for 2016. This includes the three-runway system at Changi Airport, the National Cancer Centre and Public Utilities Board’s (PUB) water reclamation and sewage works. Thus, we can expect the CADSGD currency pair to decline further.

Technically, as the chart indicates, the main line of the MACD indicator is below the signal line. The next major support is only at 1.0335.

CADSGD Technical Analysis - 23rd May 2016

Thus, a currency trader should go short near 1.0550 levels with a stop loss at 1.0750. Profit booking is advised at 1.0350.

A one touch put option contract should be purchased by a binary options trader to earn money from the probable decline. The strike price for the put options contract should be preferably 1.0380 or higher. Furthermore, it is better to choose an expiry date between the 14th and 21st of June.



Sammy is our forex expert, with over 20 years experience in the financial sector, she will be keeping you up to date with the ups and downs of currencies around the world

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