USD/CAD – Canadian Dollar Gains After Weak US Manufacturing Data

The Canadian dollar continues to take advantage of weak numbers out of the United States, and has posted further gains in Tuesday trading. USD/CAD has lost over one cent in the past week, as the pair was trading in the 1.0130 range early in the North American session. On Monday, US Manufacturing PMIs fell below their estimates. Tuesday’s major US release is Factory Orders. The only Canadian release is a speech by BOC Deputy Governor John Murray, who will address an economic forum in Washington. 

US releases were a big disappointment last week, with poor data across a range of sectors, including housing and employment. The new week did not start well, as the ISM Manufacturing PMI dropped sharply from 54.2 points to 51.3 points, way below the estimate of 54.2 points. As well, Final Manufacturing PMI came in at 54.6 points, missing the forecast of 55.0 points. If this week continues in a downward trend, we could see a negative reaction from the markets, as concerns rise about the US recovery. The major events for this week include: ISM Non-Manufacturing PMI and key employment numbers.

The markets are waiting as the Bank of Japan meets for a 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. So we could see some important developments at this week’s meeting.

Over in Europe, the markets continue to cast a worried eye at Cyprus. The bailout agreement worth EUR13 billion may have been signed, but the drama and uncertainty in the small island country continue. Capital controls are still in place in Cyprus, as the government takes strict measures in order to head off a run on the banks by nervous deposit holders. Under the agreement, bank deposits under EUR100,000 will be left untouched, but there is confusion and uncertainty as to what will happen to larger accounts, which have been frozen. There is plenty of speculation about what will happen, with rumors that these accounts could get hit with huge taxes of up to 40%. As developments unfold, we could see some sharp reactions from the currency markets.

USD/CAD for Tuesday, April 2, 2013

1.0133 H: 1.0167 L: 1.0126

USD/CAD Technical

USD/CAD continues to move lower, trading in the low-1.01 range. There is support at the round number of 1.01. This line could see activity if the pair’s downward momentum continues. The next support level is at 1.0041, which is protecting the all-important parity level. On the upside, 1.0157 is the next line of resistance. 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

USD/CAD ratio has a solid majority of short positions. This indicates that trader sentiment remains biased towards the Canadian dollar improving against the US currency. This is reflected in the current movement of the pair, which continues to move lower.

The Canadian dollar continues to improve, and is moving closer to the parity line. Will the loonie continue its upward momentum? Tuesday is relatively quiet, but Wednesday the US releases key employment and PMI data, so we could see more volatility from the pair on Wednesday.

USD/CAD Fundamentals

• 4:20 Canadian BOC Deputy Governor John Murray Speaks in Washington
• 14:00 US Factory Orders. Estimate 3.1%
• 14:00 US IBD/TIPP Economic Optimism. Estimate 46.1 points
• All Day: US Total Vehicle Sales. Estimate 15.3M

*Key releases are highlighted in bold

*All release times are GMT

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