USD/CAD – Quiet Ahead of Bank of Canada Announcement

USD/CAD is steady, as the pair trades in the low-0.99 range. After edging lower earlier on Wednesday, the pair is trading around the 0.9920 line. In the US, Tuesday’s economic releases did not impress the markets. Existing Home Sales came in well below the market forecast, and the Richmond Manufacturing Index dropped to a six-month low. In Canada, the Bank of Canada will be on center stage, as it announces the benchmark interest rates for January.

US Existing Housing Sales disappointed the markets. The key housing indicator slipped to 4.94 million, which was well below the estimate of 5.09M. There was more bad news from the manufacturing sector, as the Richmond Manufacturing Index plunged 12 points, its worst showing since July 2012. The markets had anticipated a rise of 4 points. This release was the third dismal manufacturing reading in January, and underscores that the US manufacturing sector is experiencing ongoing contraction. The markets will be watching the Bank of Canada, which announces its new interest rate later on Wednesday. No change is expected from the current level of 1.0%. The rate announcement will be accompanied by a Rate Statement, Monetary Policy Report and Press Conference, so we could see some movement in USD/CAD if the BOC has something interesting to say.

The US fiscal cliff crisis has taken a short breather, but Congress is getting ready to do battle over the next round of budget negotiations, which have been stalled due to sharp disagreements between the Republicans and Democrats. The Republicans have announced that they will table a proposal in Congress which would extend the debt ceiling until April 15. This would allow the U.S. government to borrow enough money to keep it fully operating for the next three months until the sides can reach an agreement. The recent fiscal cliff agreement postponed the hot issues of spending cuts and the huge US debt, but another fiscal deadline is not far away. On March 1, steep spending cuts to defense and domestic programs are scheduled to take place. After a short period of calm, we can expect more fireworks on Capitol Hill.

The markets were still analyzing the easing measures announced by the Bank of Japan at a widely-anticipated policy meeting on Tuesday. As expected, the BOJ changed its inflation stance, increasing its inflation target from 1% to 2%. The central bank also announced an open-ended commitment to buy assets under its asset-buying and lending scheme. The monthly purchase amount will be about JPY 13 trillion ($145 billion) each month. However, the program will not begin until January 2014. These steps underscore that the BOJ will be an active partner in the government’s aggressive economic platform to combat deflation and kick-start the anemic Japanese economy. Market sentiment was generally positive, although some analysts feel that the easing steps do not go far enough, and expressed disappointed that the asset-buying program will not start until next year.

USD/CAD for Wednesday, Jan 23, 2013

USD/CAD January 23 at 14:10 GMT

0.9921 H: 0.9932 L: 0.9904

USD/CAD is showing little movement, and the immediate resistance and support lines (R1 and S1 above) remain in place. On the downside, 0.9909 is providing weak support to the pair,as the greenback struggles to stay above the 0.99 level. 0.9845 is a stronger line. On the top side, 0.9943 is the next line of resistance. This line could see activity if the US dollar resumes its recent upward momentum.

Current range: 0.9909 to 0.9943.

Further levels in both directions:

• Below: 0.9909, 0.9845, 0.9809, 0.9767, 0.9625 and 0.9526.
• Above: 0.9943, 1.0003, 1.0041, 1.0157, 1.0207, 1.0286.

OANDA’s Open Position Ratios

Like the currency pair, the USD/CAD ratio is treading very quietly, with little movement to report. Look for this to changee if the pair breaks out of its current narrow range. The long positions make up most of the positions, although the short position component is very significant.

The US dollar has posted some gains against its Canadian cousin in recent days, but the pair has leveled off. Will the upward trend continue? The current drifting could change after the Bank of Canada announcement. As well, the markets will be awaiting the release of key US emplomyment data on Thursday.

USD/CAD Fundamentals

• 14:00 US HPI. Estimate 0.7%
• 15:00 Bank of Canada Monetary Policy Report
• 15:00 Bank of Canada Rate Statement
• 15:00 Bank of Canada Ovenight Rate     
• 16:15 Bank of Canada Press Conference    

*Key releases are highlighted in bold

*All release times are GMT

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