The Canadian dollar is sharply higher on Wednesday. In the North American session, USD/CAD is trading at 1.3492, down 1.29%. It has been a busy start to the new year for the Canadian dollar, which started the week with losses but has bounced back today.
US, Canada Manufacturing PMIs slow
The first release out of Canada this year was a disappointment. Manufacturing PMI fell to 49.2 in December, down from 49.6 a month earlier, but it managed to match the forecast. This is the fifth straight reading below 50.0, which separates contraction from expansion. Production and new orders were down, and prices continue to increase, forcing manufacturers to pass on the higher costs to clients. Confidence remains weak, and the only good news was a slight gain in employment growth. As we start the new year, the outlook does not look particularly positive for the manufacturing sector.
In the US, December manufacturing data was also soft. The ISM Manufacturing PMI contracted for a second straight month, slowing to 48.4 from 49.0 in November. The PMI fell to its lowest level since May 2020, when the coronavirus recovery started. On a positive note, the Employment Index improved and expanded in December to 51.4, up from 48.4 in November.
The Federal Reserve releases the minutes of its December meeting later today. The Fed has pushed back against speculation that it will ease on tightening and Jerome Powell reiterated this message at the December meeting, saying that interest rates could reach a higher peak than previously anticipated and rates could stay high for an extended period of time. If the minutes echo this hawkish stance, and the markets buy what the Fed is selling, the US dollar could gain ground.
- USD/CAD has broken below support at 1.3628 and 1.3535 and is putting pressure on 1.3476
- There is resistance at 1.3709 and 1.3780
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