USD/CAD – Almost Unchanged as Markets Await BOC Announcement

USD/CAD is showing little movement in Tuesday trading, as the pair trades in the 1.0270 range. The markets continue to nervously monitor the political crisis in Italy, which shows no signs of a breakthrough. In economic news, today’s highlight is US ISM Non-Manufacturing PMI. There are no Canadian releases today, but we could see some activity from the pair on Wednesday, with the releases of the Bank of Canada interest rate announcement and Ivey PMI.

The political crisis in Italy shows no sign of abating anytime soon. The leader of the Center-left bloc, Pier Luigi Bersani, urged the leader of the 5-Star Movement, Beppe Grillo, to support a new government or agree to new elections. So far, Grillo has refused to throw his support behind any other party, resulting in a political deadlock that threatens to paralyze the Eurozone’s third largest economy. Grillo, a former comedian, has not minced his disdain for the established political leaders, and called Bersani a “dead man walking”. The stalemate could force new elections in a country weary from a sluggish economy, a staggering debt and a dysfunctional electoral system. Meanwhile, Grillo suggested that Italy hold a referendum on whether to remain in the Eurozone. Italy is facing ac crushing debt of two trillion euros, and Grillo has called for the country to renegotiate terms. Grillo, who led his party to a stunning showing in last week’s election, can now play kingmaker in any coalition talks, and his rhetoric attacking the euro and harsh spending cuts can no longer be dismissed. Many analysts believe that Grillo, who has risen to political prominence thanks to a huge protest vote, would prefer returning to the polls rather than forming a coalition with the established parties.

In Japan, Haruhiko Kuroda, who is expected to become the new governor of the BOJ later this month, testified at a confirmation hearing in Japan’s lower house of parliament. Kuroda is a proponent of strong monetary measures to kick-start the economy. Kuroda said that he would not set limits on the amount of funds the BOJ would inject into the economy. Regarding inflation, Kuroda said that the BOJ’s current policies were not strong enough to boost inflation to the government’s target of 2%. Kuroda suggested that the BOJ consider commencing its open-ended asset purchases before the scheduled start of 2014. He took pains to note that the BOJ is not targeting the yen, which continues to trade at multi-year lows.

Back in the US, Janet Yellen, vice-chair of the US Federal Reserve, underscored the Federal Reserve’s intent to continue its current QE program and ultra-low interest rates. Yellen said that she hoped that the low interest rates would facilitate a “return to prudent risk-taking”. The current round of QE involves the purchase of $85 billion in assets each month, and critics have expressed the fear that this could lead to “asset bubbles”. However, both Fed Chair Bernanke and Yellen have argued that the benefits of a stronger recovery outweigh any such risks. Defending the Fed’s asset purchases, Yellen cited a study which found that when the central bank purchases $500 billion in bonds, unemployment drops a quarter of a percentage point within three years. Yellen’s remarks come on the heels of Bernanke’s testimony on Capitol Hill, where he defended the Fed’s monetary policy.

USD/CAD for Tuesday, March 5, 2013

1.0272 H: 1.0277 L: 1.0256

USD/CAD is trading in a narrow range in Tuesday trading. The pair is putting pressure on 1.0282 on the upside, and could break past this weak line. There is stronger resistance at 1.0361. On the downside, 1.0229 is the next support level.  This is followed by support at 1.0157.

• Current range: 1.0229 to 1.0282

Further levels in both directions:

• Below: 1.0229, 1.0157, 1.01, 1.0041, 1.00 and 0.9940
• Above: 1.0282, 1.0361, 1.0446, 1.0523 and 1.0642

OANDA’s Open Position Ratios

USD/CAD ratio is pointing towards movement in the direction of long positions. This is not currently reflected in the currency pair, which is trading in a narrow range and has been unable to sustain any momentum in either direction. The activity in the ratio could point to an expectation that the US dollar will improve against the Canadian currency.

USD/CAD has been very quiet this week, as the pair trades in the mid-1.02 range. We could see the pair break out on Wednesday, as the Bank of Canada announces its benchmark interest rate and the Ivey PMI, a key indicator, is released.  

USD/CAD Fundamentals

• 15:00 US ISM Non-Manufacturing PMI. Estimate 55.0 points.
• 15:00 US IBD/TIPP Economic Optimism. Estimate 47.8 points.

*Key releases are highlighted in bold

*All release times are GMT

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