USD/CAD – Steady Ahead of Federal Reserve Statement

The Canadian dollar has edged higher in Wednesday trading. Early in the North American session, USD/CAD is trading in the low-1.11 range. In economic news, US manufacturing data was dismal on Tuesday, as Core Durable Goods Orders and Durable Goods Orders both posted declines in December. CB Consumer Confidence surprised the markets by crossing above the 80-point level. Wednesday’s highlight is the Federal Reserve Monetary Policy Statement, at which time the Fed will announce whether it will continue to scale down QE.

Will the Fed pull the taper trigger? The markets are waiting for the Fed’s policy statement on Wednesday, with most analysts predicting that the Fed will indeed go ahead and reduce QE for a second straight month. Such a move would mark an important vote of confidence in the US economy, and could give a boost to the US dollar against its major rivals. This policy meeting will be chairman Bernard Bernanke’s last hurrah, as Janet Yellen takes over the reins of the Fed on February 1.

In the US, Core Durable Goods Orders posted another decline, its sixth in seven readings. The key manufacturing release fell 1.6%, well short of the estimate of a 0.7% gain. It was the indicator’s sharpest drop since August 2012. There was no relief from Durable Goods Orders, which plunged lower by 4.3%, nowhere near the estimate of 1.9%. CB Consumer Confidence looked much sharper, climbing to 80.7 points, up from 78.1 a month earlier. The estimate stood at 78.3 points.

The Canadian dollar continues to trade at three-year lows against the US currency. The loonie slipped over 100 points last week, and continues to struggle. The loonie has had a miserable January, surrendering about 600 points to the surging US dollar. As expected, the Bank of Canada kept the benchmark interest rate pegged at 1.0% late last week. However, the Canadian dollar took a hit as the markets reacted negatively to the BOC’s policy statement, in which the Bank noted that it was increasingly concerned about persistently low inflation which has been weighing heavily on the sluggish Canadian economy. 

The health of the US housing sector continues to concern the markets, as New Home Sales dropped sharply in December to 414 thousand, down from 464 thousand a month earlier. This was nowhere near the estimate of 457 thousand. This follows a disappointing Existing Home Sales release last week. The key indicator dropped to 4.87 million, down from 4.90 million a month earlier and shy of the estimate of the 4.94 million. This was the indicator’s fourth straight drop. The markets will be hoping for better news from Pending Home Sales on Thursday.

USD/CAD for Wednesday, January 29, 2014

USD/CAD January 29 at 14:30 GMT

USD/CAD 1.1122 H: 1.1187 L: 1.1103

USD/CAD Technical

• USD/CAD has lost ground in Wednesday trading. The pair touched a low of 1.1103 late in the European session.
• 1.1094 is under pressure as the US dollar has dipped lower. If the pair breaks through this support line, we could see the loonie post strong gains, as the next support level is at the key level of 1.1000.
• On the upside, 1.1177 is providing resistance. This is followed by resistance at 1.1319, which has remained intact since July 2009.
• Current range: 1.1094 to 1.1177

Further levels in both directions:

• Below: 1.1094, 1.1000, 1.0906, 1.0852 and 1.0783
• Above: 1.1177, 1.1319, 1.1496 and 1.1610

OANDA’s Open Positions Ratio

USD/CAD ratio is pointing to gains in short positions in Wednesday trading, continuing the trend we saw a day earlier. This is consistent with what we are seeing from the pair, as the Canadian dollar has edged higher. The ratio is made up of a majority of short positions, indicating a trader bias towards the Canadian dollar continuing to move to higher ground.

The Canadian dollar is steady in Wednesday trading. With the Federal Reserve issuing a policy statement later in the day, we could see some movement from USD/CAD during the North American session.

USD/CAD Fundamentals

• 15:30 US Crude Oil Inventories. Estimate 2.2M.
• 19:00 US FOMC Statement.
• 19:00 US Federal Funds Rate. Estimate <0.25%.

*Key releases are highlighted in bold

*All release times are GMT

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.