USD/CAD – Canadian Dollar Stable After Dismal Week

The Canadian dollar is trading quietly in Monday trading, after being roughed up by the US dollar last week. USD/CAD jumped about 150 points last week, and is trading in the mid-1.04 range, its highest levels since early September. In economic news, US Pending Home Sales plunged 5.6%, its worst performance in over two years. There are no Canadian releases on Monday.

Last week ended on a disappointing note as key US releases posted declines. Core Durable Goods Orders dropped -0.1%, well below the estimate of a 0.6% gain. This was the third straight decline for the indicator. Durable Goods Orders looked much better, posting a strong gain of 3.7%. UoM Consumer Sentiment couldn’t find its footing, dropping from 77.5 to 73.2 points, its weakest showing in 2013. The estimate stood at 78.2 points. Monday brought no relief, as US Pending Home Sales shocked the markets with a slide of -5.6%. The markets had expected a slight gain of 0.5%. It was the key housing indicator’s worst reading since April 2011.

US employment releases did not look sharp last week, continuing to raise concerns about the health of the US economy. On Thursday, Unemployment Claims came in at 350 thousand, above the estimate of 343 thousand. This weak figure came on the heels of Non-Farm Payrolls, which slipped to a six-month low. 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 government is again functioning and a default has been averted, but the recent agreement hammered out in Congress 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 good, as we saw last week. Given this situation, the Fed is unlikely to reduce QE until early 2014, perhaps as late as March or April.

There were no surprises from the BOC late last week, as the central bank maintained the benchmark interest 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%.

USD/CAD for Monday, October 28, 2013

USD/CAD October 24 at 12:55 GMT

USD/CAD 1.0441 H: 1.0452 L: 1.0430

USD/CAD Technical

• USD/CAD has started out quietly in Monday trading, as the pair continues to trade in the mid-1.04 range.
• The pair is testing resistance at 1.0442. This line has seriously weakened and could fall during the day. There is stronger resistance at 1.0502.
• USD/CAD is receiving support at 1.0337. This line has some breathing room as USD/CAD trades above the 1.04 line. 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 pointing towards short positions in Monday trading. This is not reflected in the movement of the pair, as the US dollar has posted slight gains against the Canadian currency. We are now seeing a majority of short positions in the ratio, indicating a bias towards the Canadian dollar moving higher.

The Canadian dollar remains under pressure from the greenback. We could see some volatility in the North American session, as the markets digest a dismal Pending Home Sales out of the US earlier on Monday.

USD/CAD Fundamentals

• 13:15 US Capacity Utilization Rate. Exp. 78.1%. Actual 78.3%.
• 13:15 US Industrial Production. Exp. 0.5%. Actual 0.6%.
• 14:00 US Pending Home Sales. Exp. 0.5%. Actual -5.6%.

*Key releases are highlighted in bold

*All release times are GMT

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