USD/CAD – US dollar edges higher After Mixed US Data

USD/CAD has edged higher following the release of key US data on Tuesday. The numbers continue to paint a mixed picture of the US economy. Retail Sales were strong, manufacturing data was sluggish, and the Producer Price Index came in within market expectations. The US dollar has moved up to the 98.70 range, its highest level since last week. The markets will be focusing on inflation figures, as the US releases Core CPI, a key index. There are no Canadian releases until Friday.

Speaking at the University of Michigan, Federal Reserve Chairman Bernard Bernanke had little to say about the current round of QE, but he did weigh in on the debt ceiling issue., Bernanke urged Congress to raise the debt ceiling. Bernanke further noted that having the Federal Reserve tinker with interest rates will not make much difference to the economy. What is critical, he said, is that Congress ensures that the country’s fiscal house is in order. This will lead to higher interest rates as the economy improves. The US is quickly approaching its debt limit of $16.4 trillion, and the issue promises to be a hot topic in Congress,  which is fresh off a bitter fight over the fiscal cliff. That battle left spending cuts and the debt for another day. Republicans have sounded the alarm about the staggering US debt and the crippling effect it can have on the economy. They have vowed to tie raising the debt ceiling to further spending cuts and want to see cuts to major federal programs such as Medicaid. The Democrats, led by President Obama, are adamantly opposed to cuts in federal programs, and want to deal the issues of the debt ceiling and spending cuts separately.

In the US, it’s difficult to assess the extent of the recovery based on economic data, which continues to zigzag. Retail Sales looked sharp, rising 0.5%. This beat the estimate of 0.2%, and was the biggest increase since October. Core Retail Sales also looked good, climbing 0.3%, and exceeding the market forecast of 0.2%. However, the news was not all good, as these positive numbers were not reflected in manufacturing data, which looked very weak. The Empire State Manufacturing Index dropped -7.8 points, shocking the markets, which had anticipated a gain of 1.9 points. This important index has posted consecutive declines since July, and points to serious weakness in the US manufacturing sector. The Producer Price Index, a key indicator of consumer inflation, posted a modest drop of 0.2%, just off the estimate of -0.1%.

In Canada, the markets were combing through the Bank of Canada’s Business Outlook Survey, which was released earlier this week. This well-respected quarterly report provides a snapshot of the sentiments of Canadian firms with regard to economic conditions and the business climate. The report found that Canadian businesses expect to see a stronger Canadian economy in 2013, enabling them to hire more employees. The survey also found that Canadian firms had noted an easing of lending conditions in the past few months. However, optimism remains weak, as uncertainty about the direction of the Canadian economy continues to weighs on the business sector.

USD/CAD for Wednesday, Jan 16, 2013

USD/CAD
Jan 16 at 13:50
GMT

0.9849 H: 0.9867 L: 0.9832

USD/CAD has moved slightly higher, but it remains to be seen if the pair can sustain an upward move, as the pair trades around 0.9870. The proximate support and resistant lines (S1 and R1 above) have remained in place all week, underscoring the lack of volatility. The pair continues to receive support at 0.9833. This line is not strong, but has a bit of breathing room as USD/CAD has edged higher. On the upside, 0.9898 is providing resistance. This line, which is protecting the 99 level, has held firm since early January.

• Current range: 0.9833 to 0.9898.

Further levels in both directions:

• Below: 0.9833, 0.9809, 0.9767, 0.9625 and 0.9526.
• Above: 0.9898, 0.9970, 1.0003, 1.0041 and 1.0157.

OANDA’s Open Position Ratios

The USD/CAD ratio remains static, as so far this week, the pair has been unable to sustain any momentum in either direction. Trader sentiment continues to be strongly biased towards the long position component, indicative of an expectation for the US dollar to show some improvement at the expense of the loonie. A sign of movement in the ratio could be an indication that the pair, which was been very subdued, will show some fluctuation.

USD/CAD has showed little movement, as the markets paid little attention to Fed Chair Bernard Bernanke’s comments, and then shrugged off a host of US data on Tuesday. Will the pair continue to drift? With the US releasing key employment and manufacturing data on Thursday, any unexpected readings could impact on the pair, which is resting comfortably in the mid-0.98 range.

USD/CAD Fundamentals

• 13:30 US Core CPI. Estimate 0.2%.
• 13:30 US CPI. Estimate 0.0%.
• 14:00 US TIC Long-Term Purchases. Estimate 19.8B.
• 14:15 US Capacity Utilization Rate. Estimate 78.6%.
• 14:15 US Industrial Production. Estimate 0.2%.
• 15:00 US NAHB Housing Market Index. Estimate 48 points.
• 13:30 US Crude Oil Inventories. Estimate 2.0M.
• 19:00 US Beige Book.

*Key releases are highlighted in bold
*All release times are GMT

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