USD/CAD has moved higher as we begin the new trading week. The pair is trading in the low-1.03 range late in the European session. The Canadian dollar lost some ground as Building Permits suffered its sharpest decline since 2007. In the US, the week is starting quietly, with just one minor release on the schedule. The government shutdown shows no signs of letting up, as both sides in Congress continue to play hardball with the budget.
Canadian Building Permits is known for its fluctuations, but the indicator is posting highs and lows not seen in years. In August, the key construction indicator gained 20.7%, its sharpest gain in over two years. This crushed the estimate of -2.4%. It was almost a mirror image in the September release, as the indicator plunged, posting a decline of -21.2%. This was the sharpest drop since May 2007. USD/CAD has moved slightly higher following the very weak reading.
The US government shutdown will be a week old on Tuesday, and there is no progress to report out of Washington. Democrats and Republicans continue to play the blame game as the government remains paralyzed, without funds to operate. Republicans had demanded that the Democrats delay implementation of the 2010 health care act, known as Obamacare, before agreeing to pass a budget. The Democrats have refused, saying the budget must first be passed before any discussions can be held. There are increasing concerns that a prolonged shutdown will hurt the US economy. If the shutdown does continue, we could see some instability in the markets this week, and the US dollar, which is already under strong pressure, could lose ground.
The media and markets continue to focus on the shutdown, which has paralyzed the US government for close to a week. However, a potentially devastating crisis is creeping up – the debt ceiling. The US has a debt worth $16.7 trillion, and will run out of funds to service the debt by October 17, unless Congress authorizes raising the debt ceiling. Otherwise, the US could potentially default on its obligations, which could cause chaos in the domestic and international markets. Over the weekend, Republican House Speaker John Boehner seems to have hardened his position, saying that the Republicans would not raise the debt ceiling without a “serious conversation” about what is driving the debt to such high levels. This statement (threat?) has irked the Democrats and will do little to soothe jittery markets.
Most experts predicted that the Federal Reserve would taper QE in September, and the markets were caught by surprise when the Fed balked and maintained the levels of the bond-buying program at $85 billion/mth. However, the economic and political landscape has changed dramatically in the past few weeks, with the budget deadlock in Washington, as well as growing fears about a debt ceiling crisis. Even if both of these issues were to be resolved quickly, the distortions and delays in key economic data will make it difficult for the Fed to have an accurate, up-to-date picture of the US economy. This will likely rule out any decision to taper QE before the end of the year.
USD/CAD for Monday, October 7, 2013
USD/CAD 1.0322 H: 1.0334 L: 1.0296
- USD/CAD has moved higher, as the pair trades in the low-1.03 range.
- The pair is putting pressure on the resistance line of 1.0337. This is followed by a strong resistance line at 1.0442.
- USD/CAD continues to receive support at 1.0282. This is followed by a stronger support line at 1.0224.
- Current range: 1.0282 to 1.0337
Further levels in both directions:
- Below: 1.0282, 1.0224, 1.0158 and 1.0068
- Above 1.0337, 1.0442, 1.0502, 1.0573 and 1.0652
OANDA's Open Positions Ratio
USD/CAD ratio is pointing to movement towards long positions in Monday trading. This is reflected in the current movement of the pair, as the US dollar has posted gains against its Canadian counterpart. The ratio continues to be made up of a majority of long positions, indicative of a trader bias towards the US dollar continuing to move higher.
USD/CAD has moved higher, courtesy of dismal Canadian construction data. With no major releases for the rest of the day, any moves during the North American session are likely to be limited in nature.
- 12:30 Canadian Building Permits. Estimate -2.4%. Actual -21.2%
- 19:00 US Consumer Credit. Estimate 12.6B
*Key releases are highlighted in bold
*All release times are GMT
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