The Canadian dollar has recently managed to recover some of the lost ground against the US dollar. However, one important question which arises is whether the current fundamentals support more gains for the Canadian dollar? One of the recent economic releases painted a dull picture of the Canadian economy. Today, the Canadian Ivey Purchasing Managers' Index (PMI) was released by the Richard Ivey School of Business. The forecast was of a rise from 48.2 to 52.5. However, the outcome came as a surprise, as the Canadian Ivey PMI fell to 46.9 by the end of June 2014. All important sectors registered a decline. The Canadian Employment Index came in at 45.6, the Inventories Index was 46.4 and the Supplier Deliveries Index registered a reading of 44.2.
The Canadian dollar was down immediately post the data release against most of its major counterparts. However, the market was not seen aggressive selling the Canadian dollar, as the USDCAD pair remained confined in a small range.
Bank Of Canada's Business Outlook Survey
There was one more important risk event scheduled during today's NY session. The Canada's Business Outlook Survey was released by the Bank of Canada. This report plays an important role and shows the business outlook in Canada. The report published held the downside in the Canadian dollar, as the highlight of the report was that "the summer Business Outlook Survey continues to offer some encouraging signs for the economic outlook, although lingering uncertainty amid intense competition still hinders the pace of growth". The central bank is anticipating modest improvement in past sales activity and future sales growth to remain positive in the second quarter of 2014.
In terms of inflation, the prices might increase due to the depreciation of the Canadian dollar filter through to the cost of imports. This is one of the main reasons one should not expect more gains in the Canadian dollar moving ahead.
Technically, the USDCAD pair after setting a medium-term top above the 1.1250 level has declined heavily. The pair is now trading around the 1.0600 support level. This holds a lot of importance for the pair, as the mentioned level acted as a resistance area earlier and might act as a support moving ahead. There is also a bullish trend line preceding from the lows on the weekly timeframe, which is likely to hold the downside in the pair.
Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.