USD/CAD – Little Change after Strong US Employment Release

USD/CAD is not showing much movement, as the pair trades in the 1.02 range in the Wednesday session. The markets cheered as ADP Non-Farm Payrolls came in well above the estimate. In Canada, the Bank of Canada will announce its interest rate setting and release a rate statement later on Wednesday. As well, Canadian Ivey PMI will also be released.

In the US, today’s major release received full marks, as ADP Non-Farm Payrolls sparkled. The indicator improved slightly, rising to 198 thousand new jobs. This easily beat the estimate of 172 thousand. The indicator has looked sharp in recent readings, as it beat market expectations for the third consecutive month. This week will see the release of more US employment numbers, and the results could help indicate if the US recovery is gaining traction. Unemployment Claims will be released on Thursday, and the week wraps up with official Non-Farm Employment Change, as well as the Unemployment Rate. We could see some volatility from USD/CAD during the rest of the week, as each of these key employment indicators are potential market-movers.

The markets remain jittery about developments in Italy, as the political stalemate, which has paralyzed the Eurozone’s third largest economy, shows no signs of a breakthrough. The head of the Center-left bloc, Pier Luigi Bersani, urged the maverick 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 a 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.

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 also defended the Fed’s monetary policy.

USD/CAD for Wednesday, March 6, 2013

1.0279 H: 1.0296 L: 1.0255 

USD/CAD Technical

USD/CAD is marked by narrow range trading in the Wednesday session. On the upside, the pair is putting pressure on 1.0282. This line was breached earlier today, and could face further activity. This is followed by strong resistance at 1.0361. This line has not been tested since June of 2012. The pair is receiving support at 1.0229. This is followed by a support level 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

The USD/CAD ratio has gone quiet in Wednesday trading. This is in line with what we are seeing from the pair, as USD/CAD trades quietly in the 1.0270 range. With the long positions enjoying a substantial majority, trader sentiment remains strongly biased in favor of the US dollar posting further gains against the Canadian currency.

The US dollar has enjoyed a good week against the loonie. Will the upward momentum continue? We could see the pair shake off its current drifting as the Bank of Canada announces its interest rate setting and Canadian Ivey PMI, a key release, is published later today.

USD/CAD Fundamentals

• 13:30 US ADP Non-Farm Employment Change. Estimate 172K. Actual 198K.
• 15:00 Bank of Canada Overnight Rate. Estimate 1.00%.
• 15:00 Bank of Canada Rate Statement
• 15:00 Canadian Ivey PMI. Estimate 56.2 points
• 15:00 US Factory Orders. Estimate -2.2%
• 15:30 US Crude Oil Inventories. Estimate 0.9M
• 19:00 US Beige Book.

*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.