USD/CAD – Steady as Progress Reported in Debt Limit Talks

USD/CAD is steady in Tuesday trading, as the pair continues to trade in the mid-1.03 range in Tuesday’s North American session. In economic news, the Empire State Manufacturing Index was a major disappointment, slumping to a five-month low. In Washington, there are reports that the sides are close to an agreement on the looming debt ceiling as well as the government shutdown, which has entered its third week. There are no releases out of Canada on Tuesday.

Politicians in Washington are scrambling to reach some agreement before the US hits the debt ceiling on Thursday. If Congress fails to agree on raising the debt limit before then, the US treasury will be unable to pay the country’s bills. This could lead to the US defaulting on its debt, which could cause chaos in the domestic and international markets. High-level talks over the weekend failed to break the impasse, but Senate Majority Leader Harry Reid sounded optimistic on Monday, saying that the sides had made “tremendous progress”. The talks are focusing on raising the debt ceiling for several more months until a more comprehensive agreement can be reached. Presumably, an agreement would also end the government shutdown, at least temporarily, allowing the government to resume operations.

The debt ceiling crisis is generating headlines the world over, as a US default on its financial obligations could lead to severe damage to the global economy. The US is being urged to get its act together, and quickly. The IMF has warned that the continuing uncertainty emanating out of Washington could lead to a world recession. ECB President Mario Draghi has also weighed in, saying that it was “unthinkable” that Congress would not reach an agreement on the debt ceiling.

QE tapering, one of the hottest topics in the markets just a few weeks ago, has quickly moved to the backburner, courtesy of the budget and debt ceiling crises which have gripped Washington. Last week, the Fed released the minutes of its September policy meeting. At that meeting, the Fed surprised the markets by not reducing its bond-purchasing program, which currently runs at $85 billion/mth. The minutes stated that the decision not to begin tapering was a “close call”. This has raised speculation that we could see tapering before the end of the year. However, the Fed is reluctant to make any major moves in the midst of the political crisis the US is currently experiencing. As well, the Fed is “data dependent”, and key releases such as Non-Farm Payrolls have been suspended to the shutdown. This makes it difficult for the Fed to get an accurate picture of the true state of the economy. The bottom line? We’re unlikely to see any QE moves by the Fed before December, at the earliest.

USD/CAD for Tuesday, October 15, 2013

USD/CAD October 15 at 13:50 GMT

USD/CAD 1.0359 H: 1.0368 L: 1.0332

USD/CAD Technical

• USD/CAD is steady in Tuesday trading. The pair has edged higher in the European session.
• The pair continues to face resistance at 1.0442. This is followed by a resistance line at 1.0502. This line has remained intact since early September.
• USD/CAD is receiving support at 1.0337. This is a weak line which could be tested if he Canadian dollar shows any strength. This is followed by a support level at 1.0282.
• Current range: 1.0337 to 1.0442

Further levels in both directions:

• Below: 1.0337, 1.0224, 1.0158 and 1.0068
• Above 1.0442, 1.0502, 1.0573 and 1.0652

OANDA’s Open Positions Ratio

USD/CAD ratio continues to be made up of a majority of long positions, indicative of a trader bias towards the US dollar moving higher.

USD/CAD is trading  quietly in the mid-1.03 range. With no major releases out of either country today, we can expect limited movement from the pair in the North American session, unless there is a dramatic breakthrough in Washington.

USD/CAD Fundamentals

• 1:00 Federal Reserve Chairman Bernard Bernanke Speaks.
• 12:30 US Empire State Manufacturing Index. Estimate 8.2 points. Actual 1.5 points.
• 14:00 FOMC Member William Dudley Speaks.

*Key releases are highlighted in bold

*All release times are GMT

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