The Canadian dollar continues to move sideways this week. In the Tuesday session, the pair is trading at 1.2423, up 0.03% on the day. On the release front, Canada releases Housing Starts, with an estimate of 240 thousand. In the US, today’s key event is JOLTS Job Openings, which is expected to climb to 6.05 million. On Wednesday, Canada releases Building Permits.
After a strong December, the Canadian dollar hasn’t missed a beat in January, with gains of 1.2% percent. Recent economic indicators have pointed upwards, led by sizzling employment numbers. The economy added 78.6 thousand jobs, crushing the estimate of 1.8 thousand. In November, the economy added 79.5 thousand. The unemployment rate dropped to 5.7%, down from 5.9% a month earlier. The strong numbers sent the Canadian dollar higher on Friday. Last week marked a third winning week for the rejuvenated Canadian dollar, and on Friday the currency hits its highest level against the US dollar since late September.
Much of the Canadian dollar’s recent climb can be attributed to the rise in oil, which has jumped 6.8% since mid-December. Geopolitical tensions have boosted oil prices, in particular tensions with North Korea and the recent civil unrest in Iran. There is pressure on the Bank of Canada to raise its benchmark rate of 1.0%, which is lagging behind the Federal Reserve rate of between 1.25%-1.50%. With the Fed widely expected raise rates in January, the Canadian dollar could lose ground if the BoC fails to respond with a rate hike of its own on January 17. However, the BoC may hold back, as concerns linger over US threats to dismantle the free trade agreement.
Interest rates may be in the headlines, but another important parameter is the Federal Reserve’s balance sheet. As of this month, the Fed has started to shrink its massive balance sheet of $4.4 trillion. The balance sheet ballooned during the financial crisis of 2008-2009, and good times have allowed the Fed to begin trimming its portfolio. Incoming Fed Chair Jerome Powell, who takes over in February, has estimated that the balance sheet could drop to anywhere between $2.4 trillion to $2.9 trillion after several years of cuts. Fed policymakers have not indicated a magic number for the balance sheet, but the cuts indicate a vote of confidence in the US economy.
Tuesday (January 9)
- 6:00 US NFIB Small Business Index. Estimate 108.4. Actual 104.9
- 8:15 Canadian Housing Starts. Estimate 240K
- 10:00 US JOLTS Job Openings. Estimate 6.05M
- Tentative – US IBD/TIPP Economic Optimism. Estimate 52.3
Wednesday (January 10)
- 8:30 Canadian Building Permits. Estimate -1.1%
- 8:30 US Import Prices. Estimate 0.4%
*All release times are GMT
*Key events are in bold
USD/CAD for Tuesday, January 9, 2018
USD/CAD, January 9 at 7:55 EDT
Open: 1.2420 High: 1.2448 Low: 1.2398 Close: 1.2423
USD/CAD was flat in the Asian session. The pair posted small gains in European trade but has retracted
- 1.2351 is providing support
- 1.2494 is the next resistance line
- Current range: 1.2351 to 1.2494
Further levels in both directions:
- Below: 1.2351, 1.2190 and 1.2060
- Above: 1.2494, 1.2630, 1.2757 and 1.2860
OANDA’s Open Positions Ratio
USD/CAD ratio is showing little movement in the Tuesday session. Currently, long positions have a majority (58%), indicative of trader bias towards USD/CAD breaking out and moving higher.