USD/CAD – Will the Canadian Dollar Rally Continue?

The Canadian dollar is unchanged on Monday, as USD/CAD trades just above the 1.29 line in the European session. It’s Election Day, as Canadians will choose a new prime minister and government. There are no Canadian economic releases on the schedule. Over in the US, two Fed FOMC members will deliver remarks at public events. The only economic release is the NAHB Housing Market Index, which is expected to remain steady at 62 points. Traders should keep an eye on US Building Permits, a market-mover which will be released on Tuesday.

After an awful summer, the Canadian dollar has rebounded in the past three weeks, gaining about 400 points. The loonie has benefitted from higher prices for oil, a key Canadian export. As well, expectations that the Federal Reserve might raise rates in October failed to materialize, disappointing the markets and pushing the US dollar lower against other currencies. This week kicks off with a federal election on Monday. Prime Minister Stephen Harper and his Conservative party are seeking a fourth term in office, but is expected to lose to Justin Trudeau, head of the Liberal party. A strong showing by the left-leaning New Democrats could lead to a minority government which would have difficulty governing, and this could hurt the Canadian dollar.

US key numbers on Friday were mixed. UoM Consumer Sentiment, the primary gauge of consumer confidence, jumped to 92.1 points in October, up from 85.7 points. This easily beat the estimate of 88.8 points. At the same time, JOLTS Job Openings slipped to 5.37 million, way off the estimate of 5.77 million. The JOLTS release is especially important as it is watched closely by the Fed and is a factor in its decision-making process regarding monetary policy.

Meanwhile, US manufacturing numbers in October were dismal. The Empire State Manufacturing Index posted its third straight decline, coming in at -11.4 points, missing the forecast of -7.3 points. The Philly Fed Manufacturing Index, a key release, came in at -4.5 points, shy of the estimate of -1.8 points. These figures point to contraction in the US manufacturing sector, which continues to suffer from weak global demand.

US Federal Reserve policymakers seem divided on the question of a rate hike in 2015. This was underscored last week by FOMC member Lael Brainard, who stated that the Fed should not raise rates before global economic conditions improve. Brainard noted that the Chinese slowdown has caused economic turmoil worldwide, and the US economy could lose steam due to weaker exports and weak global economic conditions. On the other end of the spectrum, another member of the FOMC, Dennis Lockhart, sounded more optimistic about a rate hike before the end of 2015. Lockhart did not rule out a rate hike in October, and added that the Fed would have more data to evaluate before its December policy meeting. With FOMC members sending out such conflicting messages, exasperated markets have been unable to get a handle on the timing of a rate hike, and this failure of the Fed to communicate a clear message continues to lead to uncertainty in the markets.

USD/CAD Fundamentals

Monday (Oct. 19)

• 14:00 Fed FOMC Member Lael Brainard Speaks.
• 14:00 NAHB Housing Market Index. Estimate 62 points.
• 16:00 Fed FOMC Member Jeffrey Lacker Speaks.

Upcoming Releases

Tuesday (Oct. 20)

• 12:30 US Building Permits. Estimate 1.16M

*Key releases are highlighted in bold

*All release times are GMT

USD/CAD for Monday, October 19, 2015

USD/CAD October 19 at 11:20 GMT

USD/CAD 1.2907  H: 1.2947 L: 1.2902

USD/CAD Technical

• USD/CAD was uneventful in the Asian and European sessions.
• 1.2930 is a weak resistance line and could see further action during the day.
• 1.2798 is a strong support level.
• Current range: 1.2798 to 1.2930

Further levels in both directions:

• Below: 1.2798, 1.2646 and 1.2552
• Above: 1.2930, 1.3063, 1.3165 and 1.3213

OANDA’s Open Positions Ratio

USD/CAD ratio has a slight majority of long positions (53%) indicative of trader bias towards USD/CAD moving higher.

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.