USD/CAD – Canadian Dollar Hits 4-week Highs, Markets Await US Inflation Reports

The Canadian dollar has posted slight gains on Monday, as the currency to rally against its US cousin. Currently, USD/CAD is trading at 1.2930. On the release front, today’s highlight is the US will release the Empire State Manufacturing Index, with the indicator expected to improve to 2.1 points. There are no Canadian releases on Monday. Tuesday promises to be busier, with the US releasing Building Permits and consumer inflation reports. Canada will publish Manufacturing Sales, a key indicator.

US numbers ended the trading week on a disappointing note. Core Retail Sales dropped 0.3%, while Retail Sales slipped to a flat 0.0%. There was no relief from PPI readings, which measure wholesale prices. PPI came in at -0.4% and Core PPI declined 0.3%. All four releases missed expectations and were lower than their previous readings. UoM Consumer Sentiment improved to 90.4 points, but this fell short of expectations. The soft PPI readings point to ongoing low inflation levels, well below the Federal Reserve’s target of about 2.0%. The Fed next meets in September to decide whether to raise interest rates. A soft GDP report last month had dampened expectations about a rate hike before 2017, but sharp employment numbers, led by a stellar NFP report, raised the odds of a September hike. However, Friday’s soft numbers have again dampened enthusiasm about a rate hike in September, and in all likelihood, the Fed will stay on the sidelines until December or even later.

The Canadian dollar enjoyed a banner week, gaining 270 points. The loonie shrugged off weak Canadian numbers (Building Permits plunged 5.5% and NHPI missed the estimate) and instead piggybacked on crude, which rose following reports of a tighter oil market. Last week, the well-respected International Energy Agency (IEA) projected that oil supplies will decrease in the third quarter, despite record pumping levels from OPEC in July. The IEA added that although oil prices have dropped recently, its balances do not show an oversupply in the second of 2016, and that it expects demand to increase in the third quarter. As well, OPEC members are planning to meet in Algiers in late September, and if an agreement to curb prices is reached, supplies would be reduced and crude prices would move upwards. The Canadian dollar has continued to rally on Monday. USD/CAD dropped to 1.2913, its lowest level since July 15.

USD/CAD Fundamentals

Monday (August 15)

• 8:30 US Empire State Manufacturing Index. Estimate 2.1
• 10:00 US NAHB Housing Market Index. Estimate 60
• 16:00 US TIC Long-Term Purchases

Tuesday (August 16)

• 8:30 US Building Permits. Estimate 1.16M
• 8:30 US CPI. Estimate 0.0%
• 8:30 US Core CPI. Estimate 0.2%
• 8:30 Canadian Manufacturing Sales. Estimate 0.8%

* Key releases are in bold

*All release times are GMT

USD/CAD for Monday, August 15, 2016

USD/CAD August 15 at 7:45 GMT

Open: 1.2958 High: 1.2975 Low: 1.2913 Close: 1.2928

USD/CAD Technical

• USD/CAD was flat in the Asian session. The pair has posted slight losses in European trade.
•  There is resistance at 1.2990
• 1.2900 is a weak support line. It could be tested in the North American session

Further levels in both directions:

• Below: 1.2900, 1.2780 and 1.2653
• Above: 1.2990, 1.3081, 1.3219 and 1.3353
• Current range: 1.2900 to 1.2990

OANDA’s Open Positions Ratio

In the USD/CAD ratio, long positions have a strong majority (60%), indicative of trader bias towards USD/CAD reversing directions and moving to higher levels.

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.