USD/CAD – Loonie in Holding Pattern Ahead of Fed Statement

USD/CAD is steady on Wednesday, following a gain of close to 100 points a day earlier. The pair is trading at 1.3230 in the European session. In economic news, there are no Canadian releases on the schedule. In the US, the Federal Reserve will release a policy statement, but is not expected to raise interest rates. On Thursday, the US releases two key events – Advance GDP and Unemployment Claims.

The Canadian dollar continues to struggle as the currency trades at 4-week lows against its US counterpart. The Canadian currency dropped 250 points last week, after the Bank of Canada painted a gloomy picture of the Canadian economy. The BOC noted that weak oil prices have had a negative impact on the export sector and hurt economic growth. The BOC released a monetary policy report which said that the Canadian economy will grow just 2 per cent in 2016 and 2.5 per cent in 2017, lower than the previous forecasts of 2.3 per cent and 2.6 per cent. The BOC has cut rates twice in 2015, each time catching the markets by surprise, which led to the Canadian dollar losing ground. Although the BOC didn’t lower rates last week, monetary divergence with the Federal Reserve will continue to weigh on the Canadian currency.

US durables, which helps gauge the strength of the manufacturing sector, were dismal in the September reports. Core Durable Goods Orders fell 0.4%, compared to the forecast of 0.0%. It marked the indicator’s first decline in six months. There was no relief from Durable Goods Orders, which posted a sharp decline of 1.2%, although this was within expectations. This was the indicator’s second straight decline, and these weak figures underscore a weak manufacturing sector, which continues to be hampered by weak global demand for US goods.

Will we see some volatility from the Canadian dollar after today’s Federal Reserve policy statement? The Federal Reserve is not expected to raise interest rates, but any hints about a hike could send the US dollar sharply higher. What the markets would really appreciate is some clarity about its monetary plans. Gone are the days of the indecipherable Fedspeak from Alan Greenspan, whose statements looked like they were written in English but were ambiguous and obtuse in the extreme. At the same time, the current Federal Reserve has failed to communicate effectively with the markets, which continue to receive conflicting signals from Fed policymakers regarding the timing of a rate hike. These mixed messages are no accident, but rather reflect the divisions between voting Fed members with regard to a rate hike. This has led to volatility in the currency markets based on the public remarks of Fed members, even though such comments may be no more than the personal view of that individual, and do not represent actual Fed policy.

USD/CAD Fundamentals

Wednesday (Oct. 28)

• 12:30 US Goods Trade Balance. Estimate -64.9B. Actual -58.6 B
• 14:30 US Crude Oil Inventories. Estimate 3.7M.
• 18:00 FOMC Statement
• 18:00 Federal Funds Rate. Estimate <0.25%

Upcoming Events

Thursday (Oct. 29)

• 12:30 US Advance GDP. Estimate 1.6%
• 12:30 US Unemployment Claims. Estimate 264K

*Key releases are highlighted in bold

*All release times are GMT

USD/CAD for Wednesday, October 28, 2015

USD/CAD October 28 at 12:20 GMT

USD/CAD 1.3235 H: 1.3279 L: 1.3222

USD/CAD Technical

• USD/CAD was unchanged in the Asian session and has posted slight losses in European trading.
• 1.3327 is an immediate resistance line.
• 1.3213 has switched to a support role. It is a weak line and could be tested during the day.
• Current range: 1.3213 to 1.3327

Further levels in both directions:

• Below: 1.3213, 1.3165, 1.3063 and 1.2930
• Above: 1.3327, 1.3457 and 1.3555

OANDA’s Open Positions Ratio

USD/CAD ratio is showing some movement towards short positions. Currently short positions command a solid majority of positions (57%). This is indicative of trader bias towards USD/CAD moving to lower ground, consistent with the movement of the pair in the European session.

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.