USD/CAD – Canadian Dollar Edges Higher, Fed Announcement Looms

The Canadian dollar has edged upwards on Tuesday, as USD/CAD trades at 1.3220. On the release front, it’s another quiet day. The US will release Building Permits and Housing Starts, with the markets expecting little change in the August reports. There are no economic releases out of Canada, but BoC Governor Stephen Poloz will deliver remarks at an event in Quebec City. On Wednesday, the Federal Reserve will set interest rates and release a monetary policy statement.

The Canadian dollar lost ground last week and continues to struggle. USD/CAD climbed as high as 1.3248 on Friday, its highest level since late July. Much of the Canadian currency’s woes can be attributed to weaker oil prices, as the economy is heavily reliant on revenue from oil exports A recent report from the International Energy Agency (IEA) said that the global oversupply of oil, which has weighed on oil prices, could extend into the middle of 2017. Crude oil prices slid five percent last week, and if oil prices continue to drop, the Canadian dollar could continue to lose ground.

All eyes will be on the Federal Reserve on Wednesday, as the bank will set interest rates and release a policy statement. Janet Yellen delivered an upbeat speech back in August, and the predictable result was increased speculation about a rate hike as early as September. However, recent economic numbers have been mixed, so the Fed is widely expected to remain on the sidelines at the Wednesday meeting and revisit monetary policy in December. The markets have priced in a September hike at just 12 percent. Still, the Fed policy statement will be closely monitored by the markets, which will be looking for hints regarding a December move. If Janet Yellen delivers a dovish message, the market’s mood could sour and the dollar could lose ground. Recent comments from FOMC members, which have been almost contradictory at times, have left the markets confused and reinforced the perception that the Fed remains divided regarding its near-future monetary policy. With the markets expecting a rate hike in the near future, greater clarity from the Fed could contribute to market stability.

US consumer inflation numbers were slightly better than expected in August. CPI posted a gain of 0.2%, edging above the forecast of 0.1%. It was a similar story with Core CPI, which rose 0.3%, compared to the forecast of 0.2%. CPI was up from 0.0% in July, with the rise being attributed to higher shelter and health care costs. If inflation indicators continue to rise, there is a greater chance of a rate hike in December, and increased speculation about a Fed hike could push the greenback to higher levels.

USD/CAD Fundamentals

Tuesday (September 20)

• 8:30 US Building Permits. Estimate 1.17M
• 8:30 US Housing Starts. Estimate 1.19M
• 12:50 BoC Governor Stephen Poloz Speaks

Wednesday (September 21)

• 14:00 FOMC Economic Projections
• 14:00 FOMC Federal Funds Rate. Estimate <0.50%
• 14:30 FOMC Press Conference

* Key releases are in bold

*All release times are EDT

USD/CAD for Tuesday, September 20, 2016

USD/CAD September 20 at 6:30 GMT

Open: 1.3202 High: 1.3228 Low: 1.3189 Close: 1.3225

USD/CAD Technical

• USD/CAD was flat in the Asian session and has shown limited movement in European trade
•  1.3120 is a strong support level
• 1.3253 an immediate resistance line

Further levels in both directions:

• Below: 1.3120, 1.3028 and 1.2922
• Above: 1.3253, 1.3371 and 1.3457
• Current range: 1.3120 to 1.3253

OANDA’s Open Positions Ratio

USD/CAD ratio is showing slight gains in short positions. Currently, short positions have a strong majority (71%), indicative of trader bias towards USD/CAD reversing directions and moving lower.

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