USD/CAD – Canadian Dollar Down As Yellen Nomination Expected

USD/CAD continues to move higher in Wednesday trading. The pair is trading in the high-1.03 range early in the North American session. The US dollar is broadly stronger after reports that President Obama will nominate Federal Reserve Vice Chairwoman Janet Yellen to head the Federal Reserve early next year. In economic news, today’s highlight is the minutes from the Fed’s last policy meeting. There are no Canadian releases on Wednesday.

The US dollar posted broad gains following media reports that President Obama will nominate Susan Yellen to replace Bernard Bernanke as chairman of the Federal Reserve. Bernanke is due to retire early in 2014, and Yellen, who serves as Fed vice-chairwoman, became the leading candidate after Lawrence Summers withdrew his candidacy. Yellen is considered dovish in stance and has supported Bernanke in three rounds of QE increases. Meanwhile, the markets will be paying close attention to the release of the FOMC minutes later today, looking for more clarity about the Fed’s position on QE tapering.

This week’s Canadian major releases have not impressed, and the weak data is weighing on the struggling loonie. Trade Balance, a key indicator, didn’t impress in September, as the trade deficit widened to $-1.3 billion, up from $-0.9 billion in August. It was the largest trade deficit this year, reflecting trouble in the critical export industry. This follows a weak Building Permits release, which posted a steep decline of -21.2% in September. This was the sharpest drop since May 2007

The US shutdown has now entered its second week, and the Republicans and Democrats continue to play the blame game. Neither side is showing any flexibility, at least in front of the cameras. Polls show that most of the public blames the Republicans for the impasse, and this is likely increasing the pressure on the Republicans to agree to pass the budget so that the government can resume operating. The economic damage from the shutdown is not expected to be substantial, but the political fallout of this crisis will likely be significant.

As the shutdown drags on, Congress needs to deal urgently with another brewing crisis – the debt ceiling. The US debt has reached $16.7 trillion, and the country will run out of funds to service the debt by October 17, unless Congress authorizes raising the debt ceiling. Otherwise, the US could potentially default on its obligations, which could cause chaos in the domestic and international markets. There is a lot of bad blood between the Republicans and Democrats over the shutdown, and this will undoubtedly complicate negotiations over the debt ceiling. With just a week to go until the debt ceiling is reached, the markets could get volatile if the politicians in Washington don’t get their act together quickly.

USD/CAD for Wednesday, October 9, 2013

USD/CAD 1.0380 H: 1.0386 L: 1.0356

USD/CAD Technical

• USD/CAD has moved higher in Wednesday trading. The pair touched a high of 1.0386 in the European session, as the Canadian dollar remains under strong pressure.
• The pair is facing resistance line at 1.0442. This is followed by resistance at 1.0502. This line has remained intact since early September.
• USD/CAD is receiving support at 1.0337. This is followed by a support level at 1.0282.
• Current range: 1.0337 to 1.0442

Further levels in both directions:

• Below: 1.0337, 1.0224, 1.0158 and 1.0068
• Above 1.0442, 1.0502, 1.0573 and 1.0652

OANDA’s Open Positions Ratio

USD/CAD ratio is pointing to movement towards short positions in Wednesday trading. This is not reflected in the current movement of the pair, as the US dollar continues to post gains against its Canadian counterpart. The ratio is to be made up of a majority of long positions, indicative of a trader bias towards the US dollar continuing to move higher.

USD/CAD continues to post gains, and is within striking distance of the 1.04 line. We could see further activity in the North American session, as the US releases the minutes of the Fed’s previous policy meeting.

USD/CAD Fundamentals

• 14:00 US FOMC Member Charles Evans Speaks.
• 14:30 US Crude Oil Inventories. Estimate 0.9M.
• 17:01 US 10-year Bond Auction.
• 18:00 US FOMC Meeting Minutes.
• 19:00 President Obama Speaks. Obama is expected to nominate Susan Yellen to head the Federal Reserve.

*Key releases are highlighted in bold

*All release times are GMT

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