American Markets Forecast - Week of 2 February 2009February 2nd, 2009 Posted in Weekly Predictions
The release of Gross Domestic Product (GDP) data for both the United States and Canada on Friday has served as a reminder that government bond yields are likely to remain depressed this year as credit conditions tighten and equity markets plunge. Canada’s economy contracted for a second consecutive month in November as the country fell deeper into recession amid a global economic downturn. The GDP saw a negative growth of 0.7% during this month.
Although the traditional definition of recession is two consecutive quarters of negative growth, both the federal government and the Bank of Canada (BoC) have determined that Canada was already in recession in the last quarter of 2008. In the United States, meanwhile, the Commerce Department reported Friday that the U.S. economy shrank by 3.8% in the 4th quarter of last year, the lowest level since 1982, but greater than economists’ forecast of a 6.4% contraction.
USD:The greenback has strengthened against all of its 16 most actively traded counterparts as investors sought relative safety from global economic turmoil in the world’s reserve currency. Against the EUR, the Dollar was bullish after weak Euro-Zone data and better-than-expected U.S. economic reports heightened fears that the global downturn could be prolonged and even deeper than many initially feared. The USD rose 1% versus the EUR to 1.2822, after appreciating 1.3% on the week so far. The Dollar also rose against the Swiss franc, buoyed by news that Swiss Finance Minister Hans-Rudolf Merz said he would support the Swiss National Bank (SNB) if it wanted to weaken its currency. The USD was last traded at 1.1595 francs, up 0.6% on the day.
Investors are beginning to bet that the USD is likely to rebound when the economy revives, signaling some investors are willing to pull out the money from other assets and take on more risk in the USD. Against the Japanese currency, the Dollar was traded at 89.57 Yen. The greenback, which touched a one-week high of 90.75 Yen on Jan. 28, has risen 2.8% from a 13-year low of 87.13 Yen on Jan. 21. And analysts expect U.S. currency may move between 87 Yen and 92 Yen for the next few weeks without making any significant breaches.
CAD:Canada’s currency fell to a one week low as a report showed the economy shrank in November and the global slump led investors to take refuge in the U.S. Dollar. The Canadian Dollar slid 0.9% to C$1.2383 per USD, from C$1.2267 yesterday. It touched C$1.2418, the weakest level since January 23. The GDP numbers for Canada were published on Friday and the data was significantly lower than expected. It showed that Canada’s economy, the world’s eighth-largest, contracted 0.7% in November. It is the second straight decline of the Canadian GDP, and the biggest drop since August 2003.
Economists say that the decline in economic activity has been increasingly broad-based and suggest that the recession’s grip on the Canadian economy is indeed strong. Analysts believe that the monetary and fiscal stimulus that the Canadian government plans to inject will lead to a modest economic recovery by the second half of 2009, but the first half of the year should continue to suffer, and as a result the Canadian currency is likely to weaken to $1.25 against the U.S. dollar by the end of March before rebounding by year’s end to $1.20.
The release of Gross Domestic Product (GDP) data for both the United States and Canada on Friday has served as a reminder that government bond yields are likely to remain depressed this year as credit conditions tighten and equity markets plunge. Canada’s economy contracted for a second consecutive month in November as the country fell deeper into recession amid a global economic downturn. The GDP saw a negative growth of 0.7% during this month.
Although the traditional definition of recession is two consecutive quarters of negative growth, both the federal government and the Bank of Canada (BoC) have determined that Canada was already in recession in the last quarter of 2008. In the United States, meanwhile, the Commerce Department reported Friday that the U.S. economy shrank by 3.8% in the 4th quarter of last year, the lowest level since 1982, but greater than economists’ forecast of a 6.4% contraction.
USD:The greenback has strengthened against all of its 16 most actively traded counterparts as investors sought relative safety from global economic turmoil in the world’s reserve currency. Against the EUR, the Dollar was bullish after weak Euro-Zone data and better-than-expected U.S. economic reports heightened fears that the global downturn could be prolonged and even deeper than many initially feared. The USD rose 1% versus the EUR to 1.2822, after appreciating 1.3% on the week so far. The Dollar also rose against the Swiss franc, buoyed by news that Swiss Finance Minister Hans-Rudolf Merz said he would support the Swiss National Bank (SNB) if it wanted to weaken its currency. The USD was last traded at 1.1595 francs, up 0.6% on the day.
Investors are beginning to bet that the USD is likely to rebound when the economy revives, signaling some investors are willing to pull out the money from other assets and take on more risk in the USD. Against the Japanese currency, the Dollar was traded at 89.57 Yen. The greenback, which touched a one-week high of 90.75 Yen on Jan. 28, has risen 2.8% from a 13-year low of 87.13 Yen on Jan. 21. And analysts expect U.S. currency may move between 87 Yen and 92 Yen for the next few weeks without making any significant breaches.
CAD:Canada’s currency fell to a one week low as a report showed the economy shrank in November and the global slump led investors to take refuge in the U.S. Dollar. The Canadian Dollar slid 0.9% to C$1.2383 per USD, from C$1.2267 yesterday. It touched C$1.2418, the weakest level since January 23. The GDP numbers for Canada were published on Friday and the data was significantly lower than expected. It showed that Canada’s economy, the world’s eighth-largest, contracted 0.7% in November. It is the second straight decline of the Canadian GDP, and the biggest drop since August 2003.
Economists say that the decline in economic activity has been increasingly broad-based and suggest that the recession’s grip on the Canadian economy is indeed strong. Analysts believe that the monetary and fiscal stimulus that the Canadian government plans to inject will lead to a modest economic recovery by the second half of 2009, but the first half of the year should continue to suffer, and as a result the Canadian currency is likely to weaken to $1.25 against the U.S. dollar by the end of March before rebounding by year’s end to $1.20.
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