USD/CAD – Canadian Dollar Higher, Markets Await FOMC Meeting

The Canadian dollar has posted gains to start off the week, erasing the losses which marked the Friday session. Early in the North American session, USD/CAD is trading at 1.3160. On the release front, the sole US event is the NAHB Housing Market Index. There are no Canadian releases on the schedule. On Tuesday, the US will release Building Permits, a key event.

The Canadian dollar slipped 1.0% last week, as USD/CAD pushed above the 1.32 level on Friday. As the Canadian currency is sensitive to the price of oil, a sharp drop of 5% in crude oil prices last week weighed on the struggling loonie. A recent report from the International Energy Agency (IEA) said that the global oversupply of oil, which has weighed on oil prices, could extend into the middle of 2017. If oil prices continue to drop, the Canadian dollar could continue to lose ground.

US releases ended the week on a positive note, as August consumer inflation was a bit better than expected. CPI posted a gain of 0.2%, edging above the forecast of 0.1%. It was a similar story with Core CPI, which rose 0.3%, compared to the forecast of 0.2%. CPI was up from 0.0% in July, with the rise being attributed to higher shelter and health care costs. If inflation indicators continue to rise, there is a greater chance of a rate hike in December, and increased speculation about a Fed hike could push the greenback to higher levels. The Federal Reserve will hold a policy meeting on September 21, and a rate hike is considered extremely unlikely, with a hike priced in at just 12 percent.

Ever since an upbeat speech from Janet Yellen in August, the markets have been speculating about the timing of the next Fed rate hike. However, recent economic numbers have been mixed, so the Fed is expected to remain on the sidelines on Wednesday, when it sets the benchmark rate. However, the Fed statement will be of intense interest, and the markets will be looking for clues regarding a December move. If Janet Yellen delivers a dovish message, the market’s mood could sour and the dollar could lose ground. Recent comments from FOMC members, which have been almost contradictory at times, have left the markets confused and reinforced the perception that the Fed remains divided regarding its near-future monetary policy. Will the rate picture clear up or remain fuzzy after the rate statement?

USD/CAD Fundamentals

Monday (September 19)

• 14:00 US NAHB Housing Market Index. Estimate 60 points

Tuesday (September 20)

• 12:30 US Building Permits. Estimate 1.17M

* Key releases are in bold

*All release times are EDT

USD/CAD for Monday, September 19, 2016

USD/CAD September 19 at 8:40 GMT

Open: 1.3200 High: 1.3203 Low: 1.3134 Close: 1.3166

USD/CAD Technical

• USD/CAD posted considerable losses in the Asian session and is flat in European trade
•  1.3120 is a weak support line
• 1.3253 is a strong resistance line

Further levels in both directions:

• Below: 1.3120, 1.3028 and 1.2922
• Above: 1.3253, 1.3371 and 1.3457
• Current range: 1.3120 to 1.3253

OANDA’s Open Positions Ratio

USD/CAD ratio is unchanged in the Monday session. Currently, short positions have a strong majority (68%), indicative of trader bias towards USD/CAD continuing to lose ground.

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