USD/CAD – Canadian Dollar Weakens Ahead of Fed Statement

USD/CAD is moving higher in Wednesday trading, as the pair trades in the mid-1.06 range. In economic news, Canadian Wholesale Sales posted a strong gain of 1.4%, but this hasn’t helped the struggling loonie. In the US, the markets are anxiously awaiting the Federal Reserve Monetary Policy Statement, which will be issued later in the day. In other news, Building Permits beat the estimate and Housing Starts jumped to 1.09 million, its highest level in almost six years.

For the second day in a row, strong Canadian data failed to lift the Canadian dollar. Wholesale Sales jumped 1.4%, a three-month high. This easily beat the estimate of 0.4%. On Tuesday, Manufacturing Sales, gained 1.0%, crushing the estimate of 0.2%. With the markets focusing on the upcoming Fed statement, the Canadian dollar remains under strong pressure, despite solid numbers out of Canada so far this week.

All eyes are on the Federal Reserve, which wraps up a two-day policy meeting on Wednesday. Speculation is swirling that the Fed could announce a tapering of QE. Currently, the Fed is purchasing $85 billion in assets every month, and a Fed taper will likely boost the US dollar against the major currencies. Even if the Fed doesn’t announce a scale down of its asset-purchase program, it could provide a broad hint that tapering is imminent, or provide a sweetener such as a reduction of the interest paid on reserves (IOER). Any of these options would likely result in the dollar gaining ground. However, if the Fed decides not to change current policy, the markets will be disappointed and the dollar could fall. Whatever the Fed chooses to do, we can expect some volatility from the US dollar following the Fed announcement.

Meanwhile, a two-year, bipartisan budget agreement is moving quickly through Congress. The deal was overwhelmingly approved in the House of Representatives last week and the Senate is  expected to follow suit on Wednesday. The agreement sets limits on government spending for two years and reduces the deficit by a modest $23 billion. Democrats and Republicans both had criticism of the proposal, but there is general agreement in Washington that the compromise reached is a positive step which removes much of the fiscal uncertainty we’ve seen in recent months.

 

USD/CAD for Wednesday, December 18, 2013

Forex Rate Graph 21/1/13

USD/CAD December 18 at 14:00 GMT

USD/CAD 1.0644 H: 1.0648 L: 1.0601

 

USD/CAD Technical

S3 S2 S1 R1 R2 R3
1.0442 1.0502 1.0573 1.0652 1.0783 1.0852

 

  • USD/CAD has moved higher in Wednesday trading. The pair has steadily been moving higher since early in the European session.
  • On the upside, 1.0652 is providing resistance. This line has weakened and could fall if the US dollar continues to gain ground. This is followed by a resistance line at 1.0783, which has remained intact since November 2009.
  • 1.0573 continues to provide support. This is followed by support at 1.0502, which is protecting the 1.05 line.
  • Current range: 1.0573 to 1.0652

 

Further levels in both directions:

  • Below: 1.0573, 1.0502, 1.0442 and 1.0337
  • Above 1.0652, 1.0783, 1.0852, 1.0945 and 1.10

 

OANDA’s Open Positions Ratio

USD/CAD ratio has reversed directions in Wednesday trading, pointing to gains in long positions. This is not reflected in the current movement of the pair, as the US dollar has moved higher. A majority of the open positions in the USD/CAD ratio are short, indicating a trader bias towards the Canadian dollar reversing directions and gaining ground.

The Canadian dollar remains under pressure in Wednesday trading. With the Federal Reserve set to make an announcement later today regarding its QE program, we could see some volatility from USD/CAD during the North American session.

 

USD/CAD Fundamentals

  • 13:30 Canadian Wholesale Sales. Estimate 1.4%. Actual 0.4%.
  • 13:30 US Building Permits. Estimate 0.99M. Actual 1.01M.
  • 13:30 US Housing Starts. Estimate 0.95M. Actual 1.09M.
  • 13:30 US Housing Starts (Sep. data).Estimate 0.91M. Actual 0.87M.
  • 13:30 US Housing Starts (Oct. data).Estimate 0.92M. Actual 0.89M.
  • 14:00 US Flash Services PMI. Estimate 56.4 points. Actual 56.0 points.
  • 15:30 US Crude Oil Inventories. Estimate -2.4M.
  • 19:00 US FOMC Economic Projections.
  • 19:00 US FOMC Statement.
  • 19:00 US FOMC Federal Funds Rate. Estimate <0.25%.
  • 19:30 US FOMC Press Conference.

 

*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.