USD/CAD – Little Activity as Markets Cautious Before Interest Rate Announcements

USD/CAD is quiet in Wednesday trading, as the pair trades in the mid-1.01 range. The markets are cautious as central banks in Europe, the UK and Japan set new interest rates on Thursday. In the US, ADP Employment Change came in well below expectations. There is one other key release today – ISM Non-Manufacturing PMI. There are no Canadian releases on Wednesday.

The markets will be closely monitoring the Bank of Japan policy meeting on Thursday. This will be the first meeting under the helm of the new BOJ Governor, Haruhiko Kuroda. He has made no secret of his staunch support for further aggressive monetary easing, although he has been short on specifics. Last week, Kuroda revealed a few of his closely-held cards and stated that the BOJ will consider abolishing a rule which limits the amount of government bonds that the BOJ is permitted to purchase. Further, the central bank will discuss extending the maturity of such bonds from the current three years to five years. The yen has firmed up this week as there is speculation that Kuroda will not announce more aggressive easing until the next BOJ policy meeting at the end of the month. If the BOJ does surprise the markets with some new easing moves, we could see the yen take a tumble.

Taking a look at the US, last week was uncharacteristic in that key releases were weak across the board. Manufacturing, housing, consumer confidence and employment figures all fell below expectations. The weak releases have continued into this week, as ISM Manufacturing PMI dropped and missed the estimate. Earlier today, ADP Non-Farm Employment Change dropped sharply to 158 thousand, way off the forecast of 203 thousand. If the week continues in a downward trend, we will likely see a negative reaction from the markets.

The Cyprus bailout agreement may have been signed, but the drama continues and questions remain. Strict capital controls are still in place in Cyprus in order to prevent a run on the banks. Under the agreement, bank deposits below EUR1000,000 are safe, but larger accounts with the Bank of Cyprus will be facing a haircut of up to 60%. An amount of 37.5% of these deposits will be converted into bank shares, and up to 22.5% more could be grabbed in order to prop up the Bank of Cyprus’ reserves. This steep tax is expected to have a strong negative impact on the country’s business sector, and the government has admitted that the country is in recession. In order to help the ailing economy, the government plans to lift a ban on casinos and provide tax exemptions on business profits that are reinvested on the island. President Nicos Anastasiades has acknowledged that the bailout agreement is a bitter pill for Cypriots, but said that refusing the agreement would have meant the collapse of the banking sector and could have led to Cyprus’ exit from the Eurozone.

USD/CAD for Wednesday, April 3, 2013

1.0140 H: 1.0155 L: 1.0133

USD/CAD Technical

USD/CAD is trading in a narrow range on Wednesday, as the proximate resistance and support levels remain in place (R1 and S1 above). The pair is receiving support at the round number of 1.01. This is followed by a support line at 1.0041, which is protecting the parity level. On the upside, 1.0157 is the next line of resistance. This is a weak barrier, and could be tested if the US dollar shows any signs of recovery. This is followed by resistance at 1.0229.

• Current range: 1.01 to 1.0157

Further levels in both directions:

• Below: 1.01, 1.0041, 1.00 and 99.46
• Above: 1.0157, 1.0229, 1.0282, 1.0361 and 1.0446

OANDA’s Open Position Ratios

The USD/CAD ratio is showing little movement in Wednesday trading. This is consistent with what we are seeing from the pair at present, as USD/CAD trades in a narrow range. The ratio is dominated by short positions, indicating that trader sentiment is biased towards the Canadian dollar posting gains against the US currency.

The Canadian dollar continues to post modest gains against the greenback, and is at its highest level against the US currency since mid-February. Will the upward momentum continue? We are likely to see more range trading until we hear interest rate announcements from the central banks of Europe, the UK and Japan on Thursday.

USD/CAD Fundamentals

• 12:15 US ADP Non-Farm Employment Change. Estimate 203K. Actual 158K.
• 14:00 US ISM Non-Manufacturing PMI. Estimate 55.9 points
• 14:30 US Crude Oil Inventories. Estimate 1.8M
• 21:00 US FOMC Member James Bullard 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.