USD/CAD – Loonie Under Pressure after Strong US Consumer Confidence Numbers

The Canadian dollar remains under pressure, as USD/CAD briefly pushed above the 1.04 line in Wednesday’s European session. The pair has since retracted back into 1.03 territory, but the 1.04 level remains vulnerable. In economic news, the US posted outstanding consumer confidence numbers o n Tuesday. Later on Wednesday, the Bank of Canada will announce its benchmark interest rate. No change is expected to the current level, which stands at 1.00%. It is a quiet day in the US, with the only release a speech by FOMC Member Eric Rosengren.

The markets are accustomed to ups and downs in US numbers, which has typified US releases in 2013. Last week saw mixed housing numbers, as Existing Home Sales missed the estimate, but New Home Sales looked very sharp. Unemployment Claims bounce back with a strong release, and the week ended with a rise in Core Durable Goods Orders. This week started off with a bang, as CB Consumer Confidence jumped from 68.1 points to 76.2 points, its best showing since June 2009. As well, the S&P/CS Composite-20 HPI rose by 10.9%, beating the estimate of 10.2%. This points to more activity in the US housing market. If US indicators continue to point upwards, we could see the greenback post further gains against the Canadian dollar.

In Canada, Governor Mark Carney bids farewell to the Bank of Canada, which he has headed since late 2007. The markets expect Carney to leave the 1.00% benchmark rate unchanged, and retain the bias in favor of raising rates. Carney will take the reins of the Bank of England next month, and will be replaced at the BOC by Stephen Poloz. In the past, when the BOC has made no changes to monetary policy, the Canadian dollar has shown improvement. Will we see the trend continue this time as well?

Taking a look at Japan, the government and the BOJ have declared deflation as Public Enemy Number One, and the BOJ has embarked on an aggressive monetary easing program, as it seeks to double the monetary base within two years. However, inflation indicators continue to point to deflation, despite these efforts. Corporate Services Price Index, which measures corporate inflation, actually worsened, as the indicator fell from -0.2% to -0.4%. Critics of the government’s agenda say economic growth cannot be created by monetary policy alone, and deflation continues to hobble the Japanese economy. If inflation doesn’t start to pick up, the government will face pressure to take additional steps to kick-start the economy.

 

USD/CAD for Wednesday, May 29, 2013

Forex Rate Graph 21/1/13
USD/CAD May 29 at 13:55 GMT

USD/CAD 1.0372 H: 1.0420 L: 1.0359

 

USD/CAD Technical

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

 

USD/CAD has edged lower after briefly breaking above the 1.04 line. The pair faces resistance at 1.0442. This is followed by resistance just above the 1.05 level, at 1.0502. On the downside, 1.0337 continues to provide support. This line could face pressure if the Canadian dollar can continue to push higher. There is stronger support at 1.0282.

  • 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, 1.0658 and 1.0758

 

OANDA’s Open Positions Ratio

USD/CAD ratio continues to point to movement towards short positions, a trend we have seen all week. This is reflected in the current movement of the pair, as the Canadian dollar has edged higher. Short positions make up a majority of the open positions, indicating a bias towards the Canadian dollar continuing to improve against the US currency.

After a quiet start to the week, the markets are being treated to a lot of activity from USD/ CAD. The volatility could continue as the markets wait for the BOC to set interest rate and release a rate statement later today.

 

USD/CAD Fundamentals

  • 14:00 Bank of Canada Rate Statement
  • 14:00 Bank of Canada Overnight Rate. Estimate 1.00%
  • 17:00 US FOMC Member Eric Rosengren Speaks

 

*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.

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.