USD/CAD – Canadian Dollar in Holding Pattern Ahead of Canadian Retail Sales, GDP

The Canadian dollar is flat on Wednesday, as USD/CAD trades just above the 1.39 line in Wednesday’s European session. It’s a busy day on the economic calendar, so we could see some movement from the pair during the day. Canada will release two market-movers, Core Retail Sales and GDP. In the US, we’ll get a look at Core Durable Goods Orders and the UoM Consumer Sentiment.

The US economy continues to improve, as GDP expanded by 2.0%, above the forecast of 1.9%. The main catalyst for the solid reading was consumer spending, as confidence about the economy remains high, as the US consumer has shown greater willingness to open the purse strings. Falling gas prices have helped, as consumers have more disposable income available. There was more good news from the manufacturing sector, which has been one area of weakness in the economy, as the Richmond Manufacturing Index jumped to a 5-month high, climbing to 6 points. The estimate stood at -1 point. However, Existing Home Sales dropped sharply, falling to 4.76 million, its worst showing since April 2014.

After months of standing on the sidelines, the Federal Reserve finally pressed the rate trigger, raising interest rates by 0.25 percent, the first rate hike since June 2006. The Fed dropped a broad hint in its October policy meeting about a rate hike before the end of 2015, and predictably, investors and traders were busy trying to guess whether the Fed would indeed press the rate trigger. To the credit of Fed chief Janet Yellen and her colleagues, the Fed put into place a carefully-crafted strategy, sending a steady of stream of signals that it was intending to tighten monetary policy, if economic conditions remained positive. This gave the markets ample time to price in a rate hike, and currency market volatility was not excessive after the US rate hike, the first in almost 10 years. Although a hike of 0.25 percent is expected to have limited economic impact, the Fed move has given the US economy a critical vote of confidence, and this will be duly noted by the global markets. As well, this move is expected to be the first in a series of incremental rate hikes over the course of 2016, and higher interest rates means that the US dollar will become even more attractive to investors, at the expense of other currencies, which could spell bad news for the wobbly Canadian dollar.

The Canadian dollar has endured a dreadful December, sinking some 600 points against its US counterpart. However, the currency has leveled this week, staying close to the 1.39 line. As a commodity-based currency, the Canadian dollar is sensitive to the ups-and downs in commodity prices. With oil prices mired in multi-low levels, the Canadian economy has taken a hit, and the Canadian dollar has also responded with sharp losses. Last week’s Federal Reserve rate hike only added to the loonie’s woes, and USD/CAD touched above the 1.40 line last week, the first time this has occurred since May 2004. Traders should be prepared for the Canadian dollar to continue to decline, as there is little reason to expect the currency to recover anytime soon.

USD/CAD Fundamentals

Wednesday (Dec. 23)

• 13:30 Canadian Core Retail Sales
• 13:30 Canadian GDP
• 13:30 Canadian Retail Sales
• 13:30 US Core Durable Goods Orders. Estimate 0.1%
• 13:30 US Core PCE Price Index. Estimate 0.1%
• 13:30 US Durable Goods Orders. Estimate -0.6%
• 13:30 US Personal Income. Estimate 0.2%
• 15:00 US New Home Sales. Estimate 507K
• 15:00 US Revised UoM Consumer Sentiment. Estimate 92.1 points
• 15:00 US Revised UoM Inflation Expectations
• 15:30 US Crude Oil Inventories. Estimate 1.4M

Thursday (Dec. 24)

Upcoming Key Events

13:30 US Unemployment Claims. Estimate 270K

*Key releases are highlighted in bold

*All release times are GMT

USD/CAD for Wednesday, December 23, 2015

USD/CAD December 22 at 8:50 GMT

USD/CAD 1.3914 H: 1.3923 L: 1.3911

USD/CAD Technical

• USD/CAD has been flat in the Asian and European sessions, continuing the pattern we saw a day earlier.
• There is resistance at the round number of 1.40
• 1.3865 is providing support level.
• Current range: 1.3865 to 1.40

Further levels in both directions:

• Below: 1.3865, 1.3757 and 1.3640
• Above: 1.40, 1.4165 and 1.4310

OANDA’s Open Positions Ratio

USD/CAD ratio is unchanged, reflective of the lack of movement from the pair. Short positions have a commanding majority (66%), indicative of trader bias towards USD/CAD moving lower.

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.