USD/CAD – BOC Maintains Rate, Loonie Loses Ground

The Canadian dollar has lost about one cent on Wednesday, as USD/CAD has pushed higher and is trading close to the 1.04 line in Wednesday’s North American session. As expected, the Bank of Canada maintained it key interest rate at 1.00%. It’s a quiet day in the US, with no major releases on today’s schedule.

There were no surprises from the BOC, which continued to maintain the benchmark rate at 1.00%. However, the BOC’s rate statement stated that the country’s level of economic activity is “lower than the Bank had been expecting”, and there was no reference to the need for future rate hikes, which we’ve seen in previous rate statements. The BOC’s growth forecast reflects a slowdown in the Canadian economy, with the forecast for 2013 downgraded from 1.8% to 1.6%, and the outlook for 2014 lowered from 2.7% to 2.3%.

There was plenty of anticipation leading up to the release of US Non-Farm Payrolls on Tuesday, as the key indicator had been postponed from early October due to the government shutdown. However, the markets were left with a sour taste, as NFP slipped to 148 thousand in September, dropping sharply from 169 thousand in August. This was a six-month low, and well off the estimate of 182 thousand. The US unemployment rate dipped to 7.2%, a five-year low, but this does not point to increased employment, as the participation rate remained at 63.8%, its lowest level since 1978. These figures indicate that the US labor market continues to have difficulty creating new jobs. The US dollar was broadly lower following the weak NFP reading, and the euro gained about one cent against the dollar.

There was some optimism and relief last week, as the Republicans and Democrats finally reached an agreement last week to reopen the government and raise the debt ceiling, following weeks of fighting in Congress. However, the deal provides short-term relief only – the government will be funded until January 15, while the debt limit will be raised until February 7. Both sides have agreed to discuss budget issues and try to reach a long-term agreement before December 13. So we could be right back where we started in just a few months. At the same time, the public is angry at lawmakers for creating the crisis, and with congressional elections only a year away, the politicians on Capitol Hill may think twice before plunging the country into another fiscal and political crisis.

The US government is again functioning and a default has been averted, but the agreement hammered out in Congress last week provides short-term relief only, as it raises the debt ceiling until early February and funds the government until mid-January. The underlying budgetary issues remain unresolved, consumer confidence has been shaken and employment numbers are not looking all that good. Given this situation, the Fed is unlikely to push the taper trigger until early 2014, perhaps not before March or April.

USD/CAD for Wednesday, October 23, 2013

USD/CAD October 23 at 14:45 GMT

USD/CAD 1.0387 H: 1.0392 L: 1.0292

USD/CAD Technical

• USD/CAD is up sharply on Wednesday, as the pair trades in the high-1.03 range.
• The pair is facing resistance at 1.0442. This is followed by a stronger resistance line at 1.0502.
• USD/CAD is receiving weak 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, 1.0282, 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 indicating strong movement towards short positions in Tuesday trading. This can be explained by the fact that the US dollar has posted strong gains, leading to numerous long positions being covered. This has resulted in a larger percentage of open short positions. The ratio is currently almost evenly split between long and short open postions, indicating no bias amongst traders as to which direction the pair will take.

The Canadian dollar has lost ground on Wednesday. We could see the pair push above the 1.04 line in the North American session, as the loonie is under strong pressure from its US cousin.

USD/CAD Fundamentals

• 12:30 US Import Prices. Estimate 0.3%. Actual 0.2%.
• 13:00 US HPI. Estimate 0.8%. Actual 0.3%.
• 14:00 Bank of Canada Monetary Policy Report.
• 14:00 Bank of Canada Rate Statement.
• 14:00 Bank of Canada Overnight Rate. Estimate 1.00%. Actual 1.00%.
• 14:30 US Crude Oil Inventories. Estimate 2.7M. Actual 5.2M.
• 15:15 Bank of Canada Press Conference.

*Key releases are highlighted in bold

*All release times are GMT

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