USD/CAD – Rangebound As Markets Eye Fed Statement

USD/CAD is trading in a narrow range in Wednesday trading. In the North American session, the pair is trading just above the 1.03 line. The markets are eagerly awaiting the FOMC Statement, which will be released later in the day. In Canada, today’s only release is a speech by BOC Governor Steven Poloz to the Vancouver Board of Trade.

All eyes are on the FOMC Statement, which will be released later on Wednesday, after the Federal Reserve winds up a two-day policy meeting. Fed chief Bernanke will follow up with a press conference. The markets have been speculating about QE tapering for months, and we could see the Fed take action in the upcoming statement. However, there is a stronger likelihood that QE tapering will not begin until later in the year, as US economic releases, particularly employment data, could be stronger. Traders should be prepared for some volatility from USD/CAD once the FOMC Statement is released.

Federal Reserve head Bernard Bernanke steps down as head of the US Federal Reserve at the end of January, and it’s not clear who will take over the powerful and prestigious position. Former Treasury Secretary Lawrence Summers was considered the leading contender, but withdrew his nomination, leaving Vice Chairman Janet Yellen as the favored candidate. Yellen is considered dovish and may be hesitant when it comes to QE tapering. Continuing uncertainty about who will take over from Bernanke could lead to some instability in the currency markets.

What’s wrong with the US economy? Last week’s releases were a disappointment, and this week’s releases have not impressed either. Empire State Manufacturing Index, an important release, posted another sharp drop in August. The indicator fell from 8.2 points to 6.3 points. This was way off the estimate of 9.2 points. On Tuesday, US inflation releases continued to point to very low inflation. Core CPI, a key event, posted a paltry gain of 0.1%. The markets will be hoping for some better news from today’s major release, US Building Permits.

Canadian releases have looked sharp this week, but the good news hasn’t translated into a stronger Canadian dollar. On Monday, Foreign Securities Purchases posted a gain of 6.09 billion dollars, easily surpassing the estimate of -2.23 billion. This was followed by Manufacturing Sales, which jumped 1.7%, its best reading since March. The estimate stood at 0.6%. Meanwhile, the Canadian unemployment rate has been lower than that of its southern neighbor since October 2008, but the differential has been narrowing. In August, Canada’s unemployment rate stood at 7.1%, with the US posting a 7.3% rate. Experts expect the US unemployment rate to finally fall below the Canadian one in 2014, as the US economy continues to pick up speed. This shift could hurt the Canadian dollar, which is having a tough time keeping pace with its US counterpart.

USD/CAD for Wednesday, September 18, 2013

USD/CAD 1.0303 H: 1.0305 L: 1.0298

USD/CAD Technical

• USD/CAD is rangebound in Wednesday trading, as the proximate support and resistance levels (S1 and R1 above) remain intact.
• The pair continues to face weak resistance at 1.0337. This line could break if the pair moves to higher ground. This is followed by a strong resistance line at 1.0442.
• The pair is receiving weak support at 1.0282. Will this line hold steady? This is followed by a stronger support line at 1.0224. This line has held firm since mid-June.
• Current range: 1.0282 to 1.0337

Further levels in both directions:

• Below: 1.0282, 1.0224, 1.0158 and 1.0068
• Above 1.0337, 1.0442, 1.0502, 1.0573, 1.0652 and 1.0758

OANDA’s Open Positions Ratio

USD/CAD ratio remains unchanged in Wednesday trading, continuing the trend we have seen throughout the week. This is reflected in the current movement of the pair, which is showing little movement. The ratio is currently made up of a strong majority of long positions, after a long stretch of a majority of short positions. This is indicative of a strong trader bias towards the US dollar posting gains at the expense of the loonie.

USD/CAD continues to trade quietly close to the 1.03 line. This could change dramatically, as the markets wait for the FOMC Statement later on Wednesday. Whether the Fed pulls the tapering trigger or stands pat, we could well see some volatility from the pair. As well, the US releases key construction data later in the day, and a release which is not in line with market expectations could affect the movement of the pair.

USD/CAD Fundamentals

• 12:30 US Building Permits. Estimate 0.95M.
• 12:30 US Housing Starts. Estimate 0.93M
• 14:30 US Crude Oil Inventories. Estimate -1.2M.
• 14:40 Bank of Canada Governor Stephen Poloz Speaks.
• 18:00 US FOMC Economic Projections.
• 18:00 US FOMC Statement.
• 18:00 US Federal Funds Rate. Estimate <0.25%.
• 18:30 US FOMC Press Conference.

*Key releases are highlighted in bold

*All release times are GMT

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