USD/CAD – Canadian Dollar Flat in Thin Holiday Trade

USD/CAD is showing little movement on Friday, as the pair trades at 1.3230 in the European session. Canadian markets are closed for Good Friday, so there are no Canadian releases on the calendar. The US will release Final GDP for the fourth quarter, with the markets forecasting a gain of 1.0%.

Canada is a major oil producer, so the Canadian dollar is sensitive to the price of oil. The crash in oil prices since mid-2015 has resulted in the Canadian currency sliding downwards. This trend was again apparent on Wednesday, as oil prices dropped following an Energy Information Administration inventory report of a huge surplus of US crude – the reading of 9.4 million barrels was more than triple the forecast of 2.5 million. Market players are predicting that the surplus will last at least two more years, and Phillip Futures analyst Daniel Ang said in a note on Wednesday that the current uptrend is unsustainable due to oversupply. The Canadian dollar reacted by losing 160 points to its US counterpart on Wednesday.

US durable reports in February pointed to a manufacturing sector which continues to struggle. Core Durable Goods Orders posted a decline of 1.0%, well short of the forecast of a 0.2% drop. This marked the indicator’s third decline in four months. Durable Goods Orders was even worse, with a reading of -2.8%, slightly above the estimate of -3.0%. This slowdown is reflective of weak global demand, which has had a strong negative impact on the manufacturing sectors of developed economies worldwide, including the US.

Last week’s Federal Reserve policy statement appeared to rule out any imminent rate hikes, but since then a host of Fed members have publicly expressed support for a rate hike as early as April. On Monday, John Williams, president of the San Francisco Fed, said that the Fed could raise rates in April and June if economic conditions improve. Although the dot plot (an FOMC projection of rate hikes) was lowered at the March meeting, he insisted that the Fed had not changed its path of rate hikes. His comments were echoed by Atlanta Fed Dennis Lockhart, who also said that an April rate move was a clear possibility. There was further support for rate hikes from two other Fed presidents, Patrick Harker and James Bullard. Harker said that given the strong economy, the Fed should consider raising interest rates as early as the April meeting, adding that he favored at least three rate hikes during the year. On Wednesday, Bullard said that with the US unemployment rate at very low levels, the Fed could be forced to raise rates sooner rather than later. Given these statements, traders should treat an April move by the Fed as a reasonable possibility, with US employment and inflation numbers having a huge say on the Fed’s decision.

USD/CAD for Friday, March 25, 2016

USD/CAD March 25 at 5:55 DST

Open: 1.3231 Low: 1.3213 High: 1.3261 Close: 1.3234

USD/CAD Fundamentals

Friday (March 25)

• 12:30 US Final GDP. Estimate 1.0%
• 12:30 US Final GDP Price Index. Estimate 0.9%

*All times DST

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OANDA’s Open Positions Ratio

USD/CAD ratio shows an even split between long and short positions, indicative of a lack of trader bias as to which direction the pair will take next.

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