USD/CAD – Loonie Tumbles After Yellen Rate Comments

The US dollar was broadly higher on Wednesday, following remarks by Federal Reserve chair Janet Yellen that interest rates could go up in the US in early 2015. The Canadian dollar slid over 100 points after the news, and remains under pressure on Thursday. USD/CAD is trading in the mid-1.12 range, its highest levels in almost five years. It’s been a busy day in the US. Unemployment Claims beat the estimate, but Existing Home Sales fell short of expectations. The Philly Manufacturing Index surged higher and easily beat the estimate. There are no Canadian releases on Thursday.

This week’s Canadian releases showed improvement, but this was of little help to the Canadian dollar, which took a hit after the Federal Reserve policy meeting. Canadian Wholesale Sales, an important gauge of consumer spending, posted a gain of 0.8%, compared with a 1.4% decline a month earlier. However, the markets had expected a gain of 1.2%. There was better news on Tuesday, Canadian Manufacturing Sales, a key event, jumped 1.5% in February, its best showing since last August. This easily beat the estimate of 1.1%. The strong release failed to boost the retreating Canadian dollar, which is flirting with the 1.12 line.

The Federal Reserve wrapped up its policy meeting on Wednesday, the first meeting headed by Janet Yellen. The decision to trim QE by another $10 billion was widely expected, but her comments at the follow-up press conference gave the dollar a big boost against its major rivals. Yellen said that the Fed was on track to wind up QE in the fall, and could start to raise interest rates six months later. This is a more aggressive approach towards higher rates than the markets had expected, and the Canadian dollar responded by dropping over 100 points against its US counterpart.

Western countries are scrambling to respond to Russia’s lightning takeover of the Ukrainian region of Crimea. The EU meets later on Thursday and may announce trade sanctions to punish Russia. Meanwhile, Ukraine says it will order its troops in Crimea to withdraw to the mainland, in order to de-escalate the extremely tense situation. The crisis has set off the worst confrontation between Russia and the West in over twenty years.

USD/CAD for Thursday, March 20, 2014

USD/CAD March 20 at 15:00 GMT

USD/CAD 1.1258 H: 1.1279 L: 1.1240

USD/CAD Technical

• USD/CAD has edged higher in Thursday trading. The pair touched a high of 1.1279 in the European session.
• 1.1177 has some breathing room as the Canadian dollar continues to lose ground. Next is support at 1.1319.
• 1.1319 is the next resistance line. It is followed by resistance at 1.1496, which has held firm since July 2009.
• Current range: 1.1177 to 1.1319

Further levels in both directions:

• Below: 1.1177, 1.1094, 1.1000, 1.0906 and 1.0852
• Above: 1.1319, 1.1496, 1.1639 and 1.1876

OANDA’s Open Positions Ratio

USD/CAD ratio is pointing to gains in short positions in Thursday, 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 lower. The ratio has a strong majority of short positions, indicating trader bias towards the loonie reversing its current slide.

The Canadian dollar remains under pressure on Thursday, as the currency trades at multi-year lows. USD/CAD is steady in the North American session.

USD/CAD Fundamentals

• 12:30 US Unemployment Claims. Estimate 327K. Actual 320K.
• 14:00 US Existing Home Sales. Estimate 4.65M. Actual 4.60M.
• 14:00 US Philly Fed Manufacturing Index. Estimate 4.2 points. Actual 9.2M.
• 14:00 US CB Leading Index. Estimate 0.3%. Actual 0.5%.
• 14:30 US Natural Gas Storage. Estimate -58B. Actual -48B.
• 20:00 US Bank Stress Test Results.

*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.