USD/CAD – Greenback Rises as US Manufacturing Data Improves

A long weekend wasn’t much help to the Canadian dollar, as USD/CAD is moving higher in Tuesday trading. The pair posted gains in the European session, and is trading in the mid-1.05 range early in the North American session. In economic news, it’s a fairly quiet day. US Factory Orders came in just above the estimate. Canadian markets have reopened after a long holiday weekend, and there are no Canadian releases on Tuesday.

The Canadian dollar has dropped to its lowest level since October 2011. Is the loonie headed for even lower levels? A report last week indicated that Canadian GDP fell in April to 0.1%, compared to a 0.2% gain in March. Strong US releases point to a deeper recovery, and the Canadian economy has not kept pace, hurting the Canadian dollar. The markets will get a look at the trade balances of both countries on Wednesday.

The markets may have become accustomed to seeing mixed numbers out of the US, but last week’s releases were mostly solid, helping to boost market confidence and the US dollar. Manufacturing, consumer confidence and housing numbers all beat their estimates. Unemployment Claims bounced back after a poor release the week before, and almost matched the estimate. Although GDP fell short of the estimate, the dollar remained strong, as the indicator pointed to respectable growth by the US economy. These solid numbers are particularly encouraging as they come from a wide range of economic sectors. Further strong numbers out of the US could be an indication that the recovery is gaining steam.

Global growth has been sputtering for some time, and there was more bad news on Friday, as an HSBC report downgraded its forecast for global growth. Global GDP was cut from 2.8% to 2.0% in 2013, and from 3.1% to 2.6% in 2014. In its report, HSBC said that it had lowered its forecast due to the US Federal Reserve decision to cut QE, as well as a sharp slowdown in China and other emerging countries such as India and Brazil. The report also revised China’s GDP from 8.2% to 7.4% for 2013 and from 8.4% to 7.4% for next year.  Weaker global growth will be bad news for countries which heavily depend on exports, such as Canada, Japan and Australia, and could have a negative impact on these countries’ currencies.

USD/CAD for Tuesday, July 2, 2013

USD/CAD 1.0557 H: 1.0577 L: 1.0497

USD/CAD Technical

USD/CAD has jumped higher, as the pair trades in the mid-1.05 range. The pair is facing weak resistance at 1.0573. We could see this line fall if the pair’s upward momentum continues. This is followed by a strong resistance line at 1.0652. This line has not been tested since October 2011. On the downside, the pair is receiving support at 1.0502. This is not a strong line, and could face pressure if the pair retracts after posting solid gains on Tuesday. The next support level is at 1.0442. This line has strengthened as the pair trades at higher levels.

• Current range: 1.0502 to 1.0573

Further levels in both directions:

• Below: 1.0502, 1.0442, 1.0337, 1.0282, 1.0229 and 1.0157
• Above: 1.0573, 1.0652, 1.0705, 1.0780 and 1.0853

OANDA’s Open Positions Ratio

USD/CAD ratio continues to show movement towards short positions in Tuesday trading, which we saw on Monday as well. This is not reflected in the movement of the pair, as the US dollar has posted gains at the expense of the Canadian currency. Short positions continue to enjoy a strong majority of the open positions, indicating a strong trader bias towards the pair reversing direction and moving lower.

USD/CAD has moved higher after a lackluster day on Monday, and has reached the mid-1.05 range. We could see some volatility on Wednesday, as both Canada and the US release Trade Balance. As well, the US will post key employment and services data.

USD/CAD Fundamentals

• 14:00 US Factory Orders. Estimate 2.0%. Actual 2.1%.
• 14:00 US IBD/TIPP Economic Optimism. Estimate 49.3 points. Actual 47.1 points.
• All Day – US Total Vehicle Sales. Estimate 15.3M.
• 16:30 US FOMC Member William Dudley Speaks.
• 21:45 US FOMC Member Jerome Powell Speaks.

*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.