USD/CAD – Canadian Dollar Steady, Markets Eye Annual Budget

USD/CAD is off to a quiet start this week, as the pair trades at 1.3020 in the European session. On the release front, the sole US event is Existing Home Sales, with the markets expecting the indicator to slip to 5.32 million. There are no Canadian releases on Monday. The Canadian federal government will release its annual budget on Tuesday, and traders should treat this event as a market-mover.

Canada wrapped up the week with inflation and retail sales numbers. Core CPI in February improved to 0.5%, matching the forecast. CPI remained steady at 0.2%, short of the estimate of 0.3%. Retail Sales were much stronger, as Core Retail Sales jumped 1.2%, compared to the forecast of 0.6%. Retail Sales rebounded with an excellent gain of 2.1%, crushing the forecast of 0.7%.

The Canadian dollar enjoyed another strong week, closing below the 1.30 line for the first time since October 2015. The currency has surged since February 1, with USD/CAD dropping over 900 points in that time span. Oil prices have stabilized in recent weeks, and US crude is trading above the $40 level for the first time this year. As Canada is a resource-oriented economy, higher oil prices have been good news for the Canadian dollar.  On Tuesday, Canada will release the annual budget, the first under the new Liberal government. The government has promised a stimulus package to help the economy, but the markets will be watching closely to see how high a deficit is planned in order to pay for this spending package. There has been talk that the deficit could run as higher as $30 billion, and a high deficit could worry the markets and result in the loonie losing some of its recent luster.

As widely expected, the Federal Reserve remained on the sidelines and did not raise interest rates at its policy meeting on Wednesday, maintaining the benchmark rate at 0.25%. The Fed statement noted that the US economy remains vulnerable to an uncertain global economy, but expects to raise rates later in the year due to moderate growth and “strong job gains”. The statement was dovish in tone, a clear departure from the December meeting, when the Fed raised rates for the first time in nine years and talked about four rate hikes over the course of 2016. In just a short three months, global demand has weakened, precipitated by the Chinese slowdown, and US numbers have cooled in comparison to the economy’s torrid pace in the second half of 2015. If inflation and employment numbers push higher in next several months, a rate hike in mid-2016 seems a good bet.

USD/CAD for Monday, March 21, 2016

USD/CAD March 21 at 7:00 GMT

Open: 1.3047 Low: 1.3021 High: 1.3092 Close: 1.3023

USD/CAD Fundamentals

Monday (March 21)

• 14:00 US Existing Home Sales. Estimate 5.32M

Tuesday (March 22)

• 16:00 Canadian Annual Budget Release

*All times DST

For a complete list of scheduled events in the forex market visit the MarketPulse Economic Calendar

OANDA’s Open Positions Ratio

USD/CAD ratio shows long positions with a strong majority (59%). This is indicative of USD/CAD reversing directions and heading higher.

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