USD/CAD: Loonie Under Pressure as BOC Holds Course

USD/CAD is showing some movement on Wednesday, as the pair came close to the 1.08 line earlier in the North American session. This marks a three-week low for the Canadian dollar, which is under pressure after the BOC held rates and said that its monetary stance was neutral. In economic news, Canadian Manufacturing Sales jumped 1.6%, its strongest gain in almost a year. In the US, Fed chair Janet Yellen continues her testimony on Capitol Hill, as she addresses the House Finance Committee. There was good news on the inflation rate, as PPI improved to 0.4% in June, beating the estimate.

The BOC was in the spotlight on Wednesday, as the central bank maintained the benchmark interest rate at 1.00%, where it has been pegged since September 2008. Bank of Canada Governor Stephen Poloz stated that the central bank was neutral on the direction of the next rate move, which would be data-dependent. Analysts do not expect any change in rates prior to mid-2015, based on weak inflation and growth levels which continue to bog down the Canadian economy. The markets will be keeping a close eye on Core CPI, which will be released on Friday. A stronger than expected reading will fuel likely speculation about an interest rate hike and could push the loonie to higher ground. Meanwhile, Canadian Manufacturing Sales surprised with a gain of 1.7%, beating the estimate of 1.3%. It was the strongest gain we’ve seen since last August.

South of the border, US inflation numbers have been weak, so the markets were pleasantly surprised with the June release of the Producer Price index, the primary gauge of inflation in the manufacturing sector. The index improved to 0.4%, beating the estimate of .02%. With Janet Yellen saying that a rate hike could be pushed forward if inflation and employment data exceeds expectations, stronger inflation numbers such as the June PPI will put more pressure on the Fed to raise rates.

The dollar responded positively to Fed chair Yellen’s testimony before a Senate committee on Tuesday. Yellen stated that given current economic conditions, monetary stimulus was still required, but rates could increase sooner than expected if inflation and job numbers improved more quickly than forecast. The markets were quick to give a thumbs-up to the prospect of earlier rate increases, and EUR/USD continues to lose ground. The Fed’s asset purchase program (QE) has flooded the economy with over $2 trillion, keeping interest rates at ultra-low levels, but the Fed has been steadily reducing the program since last December. Currently, the Fed is pumping $45 billion/month into the economy, and the next taper is expected in August, with plans to terminate QE in October.

 

USD/CAD for Wednesday, July 16, 2014

USD/CAD July 16 at 15:10 GMT

USD/CAD 1.0762 H: 1.0794 L: 1.0744

 

USD/CAD Technical

S3 S2 S1 R1 R2 R3
1.0414 1.0572 1.0678 1.0775 1.0852 1.0961

 

  • USD/CAD has been uneventful throughout the day, apart from earlier in the North American session, when the pair touched a high of 1.0794 before retracting.
  • On the upside, 1.0775 is under pressure and was briefly breached earlier in the day. 1.0852 follows.
  • 1.0678 has strengthened in support as the pair trades at higher levels.
  • Current range: 1.0678 to 1.0775

Further levels in both directions:

  • Below: 1.0678, 1.0572, 1.0414 and 1.0271
  • Above: 1.0775, 1.0852, 1.0961 and 1.1004

 

OANDA’s Open Positions Ratio

USD/CAD ratio is pointing to gains in short positions on Wednesday, reversing the direction seen a day earlier. This is not consistent with the movement of the pair, which is showing little movement. The ratio has a substantial majority of long positions, indicative of strong trader bias towards the US dollar breaking out and gaining ground.

 

USD/CAD Fundamentals

  • 12:30 Canadian Manufacturing Sales. Estimate 1.3%. Actual 1.7%. 
  • 12:30 US PPI. Estimate 0.2%. Actual 0.4%.
  • 12:30 US Core PPI. Estimate 0.2%. Actual 0.2%.
  • 13:00 US TIC Long Term Purchases. Estimate 27.4B. Actual 19.4B.
  • 13:15 US Capacity Utilization Rate. Estimate 79.4%. Actual 79.1%.
  • 13:15 US Industrial Production. Estimate 0.4%. Actual 0.2%.
  • 14:00 US Federal Reserve Chair Janet Yellen Testifies Before House Financial Services Committee.
  • 14:00 US NAHB Housing Market Index. Estimate 51 points. Actual 53 points.
  • 14:00 BOC Monetary Policy Report.
  • 14:00 BOC Rate Statement.
  • 14:00 BOC Overnight Rate. Estimate 1.00%. Actual 1.00%.
  • 14:30 US Crude Oil Inventories. Estimate -2.1M. Actual -7.5M.
  • 15:15 BOC Press Conference.
  • 16:00 US FOMC Member Richard Fisher Speaks.
  • 18:00 US Beige Book.

* 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.