The Canadian dollar has edged higher in Monday trading, as USD/CAD was trading just above the 1.02 level. The loonie was bolstered as Canadian Foreign Securities Purchases hit a four-month high. The indicator jumped to $13.34B, easily beating the estimate of 7.85B. The reading was especially impressive, considering the February reading of -1.92B. In the US, NAHB Housing Market Index disappointed, as the housing index dropped to 44 points, well below the estimate of 48.
Monday has seen a lot of volatility in the currency markets following the announcement of an international bailout for Cyprus. The agreement was reached over the weekend between the European Union, International Monetary Fund and the Cypriot government. The bailout includes an unusual provision of a one-time tax on bank deposits, which is expected to raise 5.8 billion euros, covering more than half of the 10 billion euro bailout. Although Cyprus does not boast a large economy, there was concern that if the country went into bankruptcy, the contagion could affect the entire Eurozone and reignite the debt crisis. In return for the bailout, Cyprus has agreed to trim its deficit, consolidate its banking sector and raise taxes. The markets reacted negatively to the announcement, reflecting a fear that the tax on deposits could lead to bank runs in other Eurozone countries struggling with high debts.
There is little worry about bank runs in the US, but the health of the economy and pace of recovery continues to weigh on the markets. After excellent US employment and retail sales numbers earlier in the week, Friday’s releases were a big disappointment. The well-respected UoM Consumer Sentiment dropped to 71.8 points, well off the estimate of 78.2 points. The Empire State Manufacturing Index also lost ground, falling to 9.2 points, and missed the estimate of 9.8 points. There was some positive news, as Industrial Production was higher, rising 0.7%. This beat the estimate of 0.4%. The markets will be keeping a close eye on this week’s Federal Reserve policy meeting, which is often a market-mover and could affect the direction of USD/CAD.
The markets are keeping a close eye on developments in Japan. The powerful Bank of Japan will welcome its new governor next week, as Parliament approved the nomination of Haruhiko Kuroda, who has left his position as head of the Asian Development Bank. Kurudo’s appointment will likely lead to further monetary easing in Japan, as the new governor has repeatedly said that the BOJ must take more action to raise inflation in order to breathe some life in a listless Japanese economy. In addition to Kuroda, Parliament approved the nominations of Kikuo Iwata and Hiroshi Nakaso as deputy chiefs at the central bank. Kuroda is seen as an ally of Prime Minister Abe, who has made eliminating deflation in the economy a top priority. Kuroda has pledged to reach the BOJ’s inflation target of 2% within two years, and the markets are expecting more monetary easing as soon as Kuroda takes over. So, traders can expect quite a bit of activity from USD/JPY. The Japanese currency has plunged 20% against the dollar since November, and further monetary easing will likely result in an even weaker yen, which is not good news for Canada, which is highly dependent on its export sector.
USD/CAD for Monday, March 18, 2013
1.0210 H: 1.0251 L: 1.0205
USD/CAD has edged lower, and is trading slightly above the 1.02 line. The pair is facing resistance at 1.0229. This is a weak line, and could see further activity if the US dollar shows any improvement. This is followed by resistance at 1.0282. On the downside, there is support at 1.0157. The next support level is at the round number of 1.01.
- Current range: 1.0157 to 1.0229
Further levels in both directions:
- Below: 1.0157, 1.01, 1.0041 and 1.00
- Above: 1.0229, 1.0282, 1.0361, 1.0446 and 1.0523
OANDA’s Open Position Ratios
As we begin the new trading week, USD/CAD ratio is pointing to strong movement towards short positions. This is consistent with what we are seeing from the pair, as the Canadian dollar has posted modest gains against the US currency. If the ratio continues with this movement, we could see the Canadian dollar post more gains.
USD/CAD continues to trade close to the 1.02 line. Will the loonie be able to push into 1.01 territory, or will the pair move higher? The markets are waiting for some important releases from both countries on Tuesday, highlighted by US Building Permits. Until then, we could see the pair keep close to the 1.02c level.
- 12:30 Canadian Foreign Securities Purchases. Estimate 7.85B. Actual 13.34B
- 14:00 US NAHB Housing Market Index. Estimate 48 points. Actual 44 points
*Key releases are highlighted in bold
*All release times are GMT
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