USD/CAD – Under Pressure as US Federal Reserve Holds Course on QE

The Canadian dollar remains under pressure, as the pair was trading in the mid-1.03 range in the European session. The US dollar has enjoyed some broad strength since Wednesday, courtesy of Federal Reserve Chair Bernanke. The Fed also released the minutes of its previous policy meeting. US Existing Home Sales missed the estimate. In economic news, Unemployment Claims rebounded and beat expectations. New Home Sales will be released later today. There are no Canadian releases until next week.

In Washington, Bernard Bernanke testified before a Congressional committee, as the markets listened closely. Bernanke initially stated that tightening monetary policy could hurt the US recovery. However, he later said that a decision to scale back QE could be taken in the “next few meetings” if the US economy improves. The bottom line? Bernanke’s comments still leave the markets guessing as to the Fed’s plans regarding the current quantitative easing (QE) program. The Fed is not making any changes to its monetary policy, but that could change if the US economy improves and unemployment falls.

Almost overshadowed by Bernanke’s remarks in Congress was the release of the minutes from the FOMC’s last policy meeting. The minutes indicate that the US recovery will have to gain more traction before the Fed winds down QE. Policy members were split, as some suggested scaling back QE in June (at the next policy meeting), while others wanted to increase QE, given the weak inflation readings we are seeing. It should be noted that the FOMC minutes relate to a meeting which took place at the beginning of May, in contrast to the fresh testimony of Bernanke on Wednesday.

The Canadian dollar continues to struggle, as Canada continues to churn out weak numbers. Last week, inflation numbers were sluggish, indicating weak economic activity. The bad news continued on Wednesday, as Core Retail Sales slipped badly, dropping from 0.7% to -0.2%. This marked a three-month low for the key indicator. Retail Sales brought no relief, as the indicator slid from 0.8% to 0.0%. The markets had expected a 0.2% gain. These readings point to weakness in consumer spending, a key engine of economic growth. The US dollar has taken advantage of these numbers, and tested the 1.04 level on Wednesday as well as today.

 

USD/CAD for Thursday, May 23, 2013

Forex Rate Graph 21/1/13
USD/CAD May 23 at 12:20 GMT

USD/CAD 1.0353 H: 1.0393 L: 1.0324

 

USD/CAD Technical

S3 S2 S1 R1 R2 R3
1.0229 1.0282 1.0337 1.0442 1.0502 1.0658

 

USD/CAD tested the 1.04 line in the Asian session, but has since retracted. We find weak support at 1.0337. This line could be tested if the Canadian dollar shows some improvement. There is a stronger support level at 1.0289. On the upside, there is resistance at 1.0442.  This line has held firm since last June.

  • Current range: 1.0337 to 1.0442

 

Further levels in both directions:

  • Below: 1.0337, 1.0282, 1.0229, 1.0157, 1.01 and 1.0041
  • Above: 1.0442, 1.0502 and 1.0658 and 1.0758

 

OANDA's Open Positions Ratio

USD/CAD ratio is not showing any change in Thursday trading. The pair has edged lower after a brief push close to the 1.04 line. If we continue to see movement from the pair, we can expect the ratio to spring back into action. A majority of positions are short, indicative of a slight bias towards the pair moving lower.

The US dollar has posted gains against the Canadian currency this week, and the pair has flirted with the 1.04 line. Will the pair continue to move higher? With the US releasing key housing data later today, we could see further movement from the pair.

 

USD/CAD Fundamentals

  • 10:05 US FOMC Member James Bullard Speaks.
  • 12:30 US Unemployment Claims. Estimate 347K. Actual 340K.
  • 13:00 US Flash Manufacturing PMI. Estimate 51.6 points. Actual 51.9 points.
  • 13:00 US HPI. Estimate 0.9%. Actual 1.3%.
  • 14:00 US New Home Sales. Estimate 429K.
  • 14:30 US Natural Gas Storage. Estimate 90B.

 

*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.

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Kenny Fisher

Kenny Fisher

Currency Analyst at Market Pulse
Kenny Fisher joined OANDA in 2012 as a Currency Analyst. Kenny writes a daily column about current economic and political developments affecting the major currency pairs, with a focus on fundamental analysis. Kenny began his career in forex at Bendix Foreign Exchange in Toronto, where he worked as a Corporate Account Manager for over seven years.