USD/CAD – Loonie Improves As US Default Averted

The US dollar is broadly weaker in Thursday trading, and the Canadian dollar also posted gains, as the pair has dropped below the 1.03 line. The markets are breathing easier as the Senate and House of Representatives voted on Wednesday to fund the government and raise the debt ceiling. In economic news, US Unemployment Claims dropped from last week, practically matching the estimate. The Philly Fed Manufacturing Index easily beat the forecast. North of the border, Canadian Foreign Securities Purchases was down sharply in September and fell well short of the forecast.

With the US teetering on the abyss of a possible default  for the first time in its history, the Republicans and Democrats finally reached as deal in Congress on Wednesday to reopen the government and raise the debt ceiling. The agreement passed by wide margins in both the Senate and House. However, the deal provides short-term relief only – the government will be funded until January 15, while the debt limit will be raised until February 7. Both sides agreed to discuss budget issues and try to reach a long-term agreement before December 13. The Republicans appear to be the big losers in this sorry tale, as they failed to obtain any concessions regarding the Obama Health Care Act and are blamed by most of the public for precipitating an unnecessary political and fiscal crisis.

After weeks of bitter partisanship and political brinkmanship, Congress finally got its act together and voted to fund the government and raise the debt ceiling. The shutdown, which lasted for over two weeks and temporarily threw hundreds of thousand of federal employees out of work, is estimated to have cost the economy $24 billion. The cost of the debt crisis is harder to quantify, but has certainly eroded faith in the US economy and perhaps in the US dollar as well. This was underscored by a warning from Fitch Ratings on Tuesday, when the agency put US debt on a negative watch. Fitch stated that the crisis had cast doubt over the credit of the United States and had undermined confidence “in the role of the US dollar as the pre-eminent global reserve currency”.

With the debt crisis out of the way, at least for a while, the markets were able to shift attention to Thursday’s economic numbers. US Unemployment Claims dropped to 358 thousand, down from 374 thousand last week. The estimate stood at 357,000. This figure is quite high due to the layoffs of hundreds of thousands of federal workers during the shutdown, as well as a continuing backlog of claims in California. Today’s other key event, the Philly Fed Manufacturing Index, dropped from 22.3 points to 19.8 points, but still easily beat the estimate of 15.4 points.

USD/CAD for Thursday, October 17, 2013

USD/CAD October 17 at 14:35 GMT

USD/CAD 1.0292 H: 1.0333 L: 1.0290

USD/CAD Technical

• USD/CAD has lost ground in Wednesday trading. The pair has dropped below the 1.03 line in the North American session.
• The pair is facing resistance at 1.0337. This is followed by a stronger resistance line at 1.0442.
• USD/CAD is receiving support at 1.0282. This is a weak line which could be tested if he Canadian dollar continues to post gains. This is followed by a support level at 1.0224, which has remained intact since mid-September.
• 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 has reversed directions and is pointing to movement towards long positions on Thursday. We are not currently seeing this from the pair, as the Canadian dollar has posted gains at the expense of the US dollar. The ratio continues to be made up of a majority of long positions, indicative of a trader bias towards the US dollar reversing position and moving higher.

The Canadian dollar jumped on the bandwagon on Thursday, taking advantage of a broadly weaker US dollar. With today’s major events already released, we could see an uneventful North American session.

USD/CAD Fundamentals

• 12:30 Canadian Foreign Securities Purchases. Estimate 7.21B. Actual 2.08B.
• 12:30 US Unemployment Claims. Estimate 357K. Actual 358K.
• 14:00 US Philly Fed Manufacturing Index. Estimate 15.4 points. Actual 19.8K.
• 16:45 US FOMC Member Charles Evans Speaks.
• 16:45 US FOMC Member Esther George Speaks.

*Key releases are highlighted in bold

*All release times are GMT

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