USD/CAD – Canadian Employment Data Shines, Loonie rangebound

After quite a bit of volatility last week, USD/CAD is rangebound in Monday’s trading. The pair continues to trade in the 0.9870 range. It’s a quiet day as far as economic releases, with no scheduled releases out of the US on Monday. Today’s only Canadian release was the important Ivey PMI. The index rebounded after a weak December release, as it easily beat the market estimate.

On Friday, both the US and Canada released key employment data. In the US, Non-Farm Employment Change rose to 155 thousand, which was slightly above the estimate of 150K. The Unemployment Rate edged up from 7.7% to 7.8%. However, the November rate was revised to 7.8%, so there was actually no change. The Canadian employment data was much stronger. Employment Change gained 39.8 thousand, which surprised the markets, as the estimate was only 4.0K. The Unemployment Rate also looked sharp, as it dropped from 7.3% to 7.1%. The numbers are certainly strong, but analysts were quick to point out that the figures are at odds with other economic indicators which point to weak growth. One senior economist went so far as to state that the numbers “defy gravity”. However, the employment numbers were not only strong, but the gains were seen throughout the economy. In Monday’s sole release, Ivey PMI looked sharp, as it bounced back above the 50 point threshold, which indicates economic expansion. The index climbed to 52.8 points, which was well above the estimate of 49.5 points.

In Canada, fundamentals remain strong, but the manufacturing and housing sectors have had a bumpy ride, and this could slow growth in 2013. There is hope that 2013 will see an improvement in the global economy , which would translate into increased demand for Canadian oil and other raw materials, and help to boost both the Canadian economy and the Canadian dollar. The Canadian economy remains in excellent shape compared with many other Western countries and both the IMF and OECD have predicted that Canada will continue to be among the strongest growing economies in the G-7 next year.

Last week’s major event was the fiscal cliff agreement reached in Congress, but more trouble lies ahead. Although both the Senate and House of Representatives passed the deal by large margins, there was plenty of grumbling on both sides of the political divide – perhaps proof that the deal reached was a true compromise. Most notably, the hard-fought agreement failed to deal with two critical issues – the debt ceiling and spending cuts. The debt ceiling will be reached in February, and Republicans have vowed that the government must agree to deep spending cuts before they will agree to raise the debt ceiling. For their part, the Democrats are strongly opposed to cuts to major federal programs such as Medicaid. The IMF has also weighed in, saying that the fiscal agreement is not enough, and that the US must take further action to deal with its long-term debt problem. The IMF call for Congress to quickly approve a comprehensive plan which to “ensure both higher revenues and containment of entitlement spending over the medium term”.

USD/CAD for Monday, Jan 7, 2013

USD/CAD
Jan 7 at 13:35
GMT

0.9872 H: 0.9885 L: 0.9862

USD/CAD Technical

USD/CAD is trading in a narrow range following last week’s volatility. The line of 0.9909 is back in its familiar role of providing the next line of resistance, with stronger resistance at 0.9943. On the downside, 0.9845 continues to provide support. This line could see some activity if the Canadian dollar can break out of the current range and show some improvement.

• Current range: 0.9845 to 0.9909.

Further levels in both directions:
• Below: 0.9845, 0.9812, 0.9767, 0.9625 and 0.9526.
• Above: 0.9909, 0.9943, 1.00, 1.0041, 1.0157 and 1.0252.

OANDA’s Open Position Ratios

Following a busy week, the USD/CAD ratio has seen movement towards the long positions. This could be an indication that the US dollar will break out from the narrow range it is now in and makes some gains against the Canadian dollar. The ratio remains strongly biased in favor of long positions, and trend looks to continue.
Last week saw a lot of activity with USD/CAD, as the Canadian dollar took advantage of broad US dollar weakening. As we begin the new trading week, the tone has changed, as the pair is boxed in a narrow range. Canada has produced some recent strong data, with outstanding employment numbers on Friday, and a solid Ivey PMI release on Monday. If the fundamentals continue to look good, the loonie could take advantage and make inroads against the US dollar.

USD/CAD Fundamentals

• 15:00 Canadian Ivey PMI. Estimate 49.5 points. Actual 52.8 points.

*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.