USD/CAD is trading at the 1.30 line early in the North American session on Wednesday. The Canadian dollar continues to show remarkable strength of late, as USD/CAD has tumbled over 400 points in the past week. Taking a look at economic releases, Canadian Building Permits was a big disappointment, posting a decline of 3.7%, well short of the estimate. Later in the day, the US will release Crude Oil Inventories. Traders should keep a close eye on two key releases on Thursday – US Unemployment Claims and the Federal Reserve Policy Meeting Minutes.
A strong case can be made that the value of the Canadian dollar is strongly linked to oil prices, as oil is one of Canada’s major exports. USD/CAD was as low as 1.22 in June, prior to the crash of oil on global markets. It’s been a rocky ride for the loonie since then, as oil has dropped to multi-year lows. In late September, the struggling Canadian dollar was close to the 1.35 level, but the currency is seeing some relief. This is in large part due to rising oil prices, which have reached their highest levels since mid-August. A report this week from the US Energy Information Agency said that the global surplus of crude is expected to ease, which should help stabilize oil prices.
All eyes are on the Federal Reserve, which will release the minutes of its last policy meeting on Thursday. For months, expectations had been running high that the Federal Reserve might press the rate trigger and bump up rates at the September meeting. However, the Fed stayed on the sidelines and maintained rates, and the US dollar faced broad pressure from its rivals as a result. At the same time, the policy statement had a hawkish tone, giving the markets hope that the Fed could still make a move prior to the end of the year. These hopes have been largely dashed by a dismal US Nonfarm Payrolls report late last week, as just 142 thousand jobs were created, compared to an estimate of 201 thousand. However, market sentiment can change fairly quickly, and if the US rebounds with some strong data, we’ll likely see more optimism about a rate hike. With this background in mind, Thursday’s minutes take on added significance and could have a strong impact on the currency markets.
Wednesday (Oct. 7)
- 12:30 Canadian Building Permits. Estimate 0.5%. Actual -3.7%.
This key indicator tends to show a lot of fluctuation, leading to readings that are often well off the estimate, as seen in the August report above. The Canadian dollar posted gains on Tuesday despite weak Trade Balance and Ivey PMI releases, both of which missed expectations. Will the loonie follow suit on Wednesday and ignore the disappointing Building Permits report?
Wednesday (Oct. 7)
- 14:30 US Crude Oil Inventories. Estimate 2.4 million.
This weekly indicator jumped in the last reading, climbing to +4.0 million, compared to -1.9 million a week earlier. The markets are expecting a smaller gain in the upcoming reading, with an estimate of 2.4 million. A better-than-expected reading could give a boost to the US dollar.
Thursday (Oct. 8)
- 12:15 Canadian New Housing Price Index
The NHPI is an important gauge of the level of activity in the Canadian housing market. The indicator posted a weak gain of 0.1% in July, which was within expectations. Little change is expected in the August report, with an estimate of 0.2%.
- 12:30 US Unemployment Claims
This is one of the most important economic indicators, and traders should treat it as a market-mover. Unemployment Claims rose slightly last week to 277 thousand, but this was within expectations. Given the dismal Nonfarm Payrolls report last week, a weaker reading than expected could send the US dollar lower.
- 18:00 Federal Reserve FOMC Meeting Minutes
The markets will be watching this event closely, given the continuing speculation about a rate hike by the Federal Reserve. Any hints about a rate hike could boost the US dollar against the Canadian currency.
*Key releases are highlighted in bold
*All release times are GMT
USD/CAD for Wednesday, October 7, 2015
USD/CAD October 7 at 12:50 GMT
USD/CAD 1.2999 H: 1.3053 L: 1.2984
- USD/CAD has posted slight losses on Wednesday.
- 1.3063 is an immediate resistance line.
- 1.2930 is the first line of support.
- Current range: 1.2930 to 1.3063
Further levels in both directions:
- Below: 1.2930, 1.2798, 1.2646 and 1.2552
- Above: 1.3063, 1.3165, 1.3213 and 1.3310
OANDA’s Open Positions Ratio
USD/CAD ratio has a majority of long positions (55:45), indicative of trader bias towards the loonie reversing its current trend and moving higher.