Canada has a much bigger mining sector (8.5% of GDP) than the U.S. (2.7% of GDP) and the Canadian economy is less diversified, due to the recent sharp drop in oil and commodity prices is a major shock to Canada’s economy.
According to Standard Chartered bank, a new base scenario shows that the Canada’s economy is entering in to the recession by the second quarter of the 2015. They have even cut the outlook of growth to 0.5% and 0.8% for 2016.
The upcoming meeting of Bank of Canada is when it releases it’s updated economic projections. The meeting is expected to be quite dovish, contrasting with the meeting of December. It is hoped the BOC will not cut the interest rate at this time. However Canadian dollar depreciation may also help to smooth the shock and support the non-energy manufacturing sector overtime, boosting exports to the U.S. This would also help with the much-needed re balancing of the economy.
As the trend on charts shows that USD/CAD has broken above an upward channel resistance and is extending the up move. Weekly RSI is registering new highs and the pair is likely to inch higher towards 1.22, the 76.4% retrenchment from 2009 highs. Short term correction, if any, should be cushioned at 1.1560.
