USD/CAD – US Dollar Relaxes After Crossing Parity

After pushing across the all-important parity threshold on Thursday, USD/CAD has leveled off, and was trading in the 1.0030 range. In the US, Unemployment Claims looked sharp for the second week running. US manufacturing data also beat the estimate. On Friday, US New Home Sales will wrap up the trading week. Canada will be releasing key CPI numbers, so it could be a busy end of the week for USD/CAD.

The US dollar has enjoyed a good week at the expense of its Canadian cousin. The greenback has gained over one cent, and crossed the critical parity line for the first time since November. US employment numbers looked sharp on Thursday, as Unemployment Claims smashed the market estimate for the second straight week. New claims dropped slightly to 330 thousand, and this easily beat the forecast of 359 thousand. The strong numbers are raising hopes that the US economy is gaining steam, but the markets will want to see these positive numbers reflected in an improvement in the high US unemployment rate, which currently stands at 7.8%. There was some good news from the manufacturing sector, which continues to be a sore spot in the economy. Manufacturing PMI jumped to 56.1 points, well above the estimate of 53.2 points. The reading was particularly good news after two dismal manufacturing releases recently.

In Canada, the loonie remains under pressure following a statement by the Bank of Canada, after it maintained interest rates at 1.0%. The BOC took a dovish view of the Canadian economy, stating that the economy has not improved as much as hoped, and that the economy was not expected to return to full capacity until the latter half of 2014. This means that unless there is a dramatic recovery, the BOC is unlikely to raise interest rates anytime soon. This has disappointed investors who would like to take advantage of higher rates sooner rather than later.

The extent of the US recovery remains a question mark, as economic data continues to point in all directions. The employment situation appears to be improving, as the Unemployment Claims indicator has looked outstanding for the past two weeks. Retail Sales also has looked sharp. On the other hand, we continue to see sluggish manufacturing and consumer sentiment data. As well, the most recent housing numbers fell below the estimate. With the US economic indicators sending mixed signals about the extent of the recovery, the uncertainty is likely to be reflected in the currency markets. The US Federal Reserve has not been in the headlines lately, but is busy at work, as it increased its purchases of securities in January from $40 billion to $85 billion. This has pushed  the Fed’s balance sheet to a record $3 trillion. Despite these measures, the US recovery remains slow, and unemployment is still high at 7.8%. The markets will be paying close attention to the Fed’s take on the economy, when it meets for a policy meeting next week.

USD/CAD for Friday, Jan 25, 2013

USD/CAD January 25 at 10:30 GMT

1.0034 H: 1.0037 L: 1.0023

After pushing across the parity line, USD/CAD is trading in the 1.0030 range. There is weak resistance at 1.0041, and this line could see some activity before the end of the week.  This is followed by resistance at 1.0157. On the support side, 1.0003 is protecting the parity line. Given the recent volatility of the pair, this line cannot be considered safe. The pair is receiving stronger support at 0.9954.

Current range: 1.0003 to 1.0041.

Further levels in both directions:

• Below: 1.003, 0.9954, 0.9898, 0.9833, 0.9809, 0.9767 and 0.9625.
• Above: 1.0041, 1.0157, 1.0207, 1.0286 and 1.0337.

OANDA’s Open Position Ratios

The USD/CAD ratio continues to show a determined move towards short positions. Although this is not being reflected in the current movement of the pair, it could be an indication that USD/CAD is due for a correction after this week’s impressive gains by the greenback. The short positions now comprise a solid majority of the open positions.

The US dollar finally pushed across the parity level after strong gains against the Canadian currency. Will the upward trend continue?  There are key releases out of both Canada and the US on Friday, so we could see some fluctuation from the pair before the end of the week.

USD/CAD Fundamentals

• 9:00 German Ifo Business Climate. Estimate 103.1 points. Actual 104.2 points.
• 15:00 US New Home Sales. Estimate 387K.

*Key releases are highlighted in bold

*All release times are GMT

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.