The US dollar has edged lower against its Canadian counterpart in Wednesday's European session. The pair was trading close to the parity level, in the 1.0020 range. In the US, a key consumer confidence reading slid sharply on Tuesday. The markets will be hoping for better news today, with three key scheduled releases - ADP Non-farm Employment Change, Advance GDP and the FOMC Statement. There are no Canadian releases on Wednesday.
The markets will be closely monitoring developments at the Federal Reserve, as the Fed wraps up an important two-day policy meeting. The Fed continues to do its best to bolster the bumpy recovery, and 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%. Minutes from the most recent FOMC pointed to members being divided between those in favor of ending QE in mid-2013, versus those who wish to continue it to a later date. When the Fed implemented the most recent round of QE, it stated that it would continue until unemployment fell to 6.5%. Most analysts are predicting that the Fed will reaffirm this stance at the conclusion of today's meeting.
US economic indicators continue to point in all directions, much to the consternation of the markets. Recent employment and retail sales numbers have been very positive, but this has been offset by weak housing and manufacturing data. Consumer confidence is also on the wane, as underscored by Tuesday's CB Consumer Confidence release. The key indicator dropped sharply to 58.6 points, its worst showing in over a year. The markets had expected a much higher reading of 64.8 points. The extent of the US recovery has proven difficult to gauge, as the economy seems to take a step or two forward, and then one step backwards. We may get a better idea of the health of the US economy with the release of GDP later on Wednesday. The markets are bracing for a relatively weak reading, with an estimate of a 1.1% gain.
The Canadian banking sector was on the receiving end of some unpleasant news earlier in the week, as the Moody’s credit rating agency downgraded the long-term ratings of six Canadian banks. All of the downgrades were by one notch, with a stable outlook. Moody’s cited concern over the banks’ vulnerability to high levels of consumer debt and the rising house prices. However, the debt markets did not react to the news, and the Canadian dollar has not lost any ground. This would seem to indicate that investor confidence in the Canadian banking sector remains high, despite the warnings from Moody’s.
USD/CAD for Wednesday, Jan 30, 2013
USD/CAD January 30 at 13:45 GMT
1.0023 H: 1.0033 L: 1.0012
USD/CAD has leveled off from its gain earlier in the week, and is trading slightly above the parity line. There is resistance at 1.0041. This line has been busy, and could face further activity. This is followed by strong resistance at the round number of 1.01. The pair failed to breach this line, and has since retreated to lower levels. On the downside, 1.0003 is providing weak support, protecting parity. The next support level is at 0.9954.
Current range: 1.0003 to 1.0041.
Further levels in both directions:
- Below: 1.0003, 0.9954, 0.9898, 0.9833, 0.9809 and 0.9767.
- Above: 1.0041, 1.01, 1.0157, 1.0207, 1.0286, 1.0365 and 1.0443.
OANDA's Open Position Ratios
The USD/CAD ratio has reversed direction, and is currently moving towards long positions. We are not seeing this reflected by the pair at present, as USD/CAD is not showing much movement. However, the ratio movement could be a sign that the US dollar will continue to post gains against the loonie. Meanwhile, a majority of the open positions remain short.
USD/CAD has leveled off after recent gains, and appears comfortable in the low-1.00 range. We could see some volatility from the pair following some major US releases, including GDP and the Federal Reserve announcement.
- 13:15 US ADP Non-Farm Employment Change. Estimate 164K.
- 13:30 US Advance GDP. Estimate 1.1%.
- 13:30 US Advance GDP Price Index. Estimate. 1.5%.
- 15:30 US Crude Oil Inventories. Estimate 2.9M.
- 19:15 US FOMC Statement.
- 19:15 US Federal Funds Rate. Estimate <0.25%.
*Key releases are highlighted in bold
*All release times are GMT
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