USD/CAD – Edges Higher as Markets Await Bernanke Remarks

USD/CAD has not shown a lot of activity so far this week, reflective of the fact that neither country has released any numbers for the markets to scrutinize. The only releases on Tuesday are speeches by US Treasury Secretary Jack Lew and two members of the FOMC. Both Canada and the US will release key data on Wednesday, and Fed chief Bernard Bernanke will testify before a Congressional Committee. In Canada, the sole release is a speech by Bank of  Canada Governor Mark Carney to the Board of Trade in Montreal. USD/CAD has again moved higher, as the pair is trading in the high-1.02 level as we start the North American session.

The loonie has struggled since hitting some turbulence on Friday, after Canada posted weak inflation numbers. Core CPI, a key event, posted a weak gain of 0.1%, missing the estimate of 0.2%. CPI recorded its first decline since January, dropping by 0.2%. The estimate stood at 0.0%. These are the weakest Canadian inflation numbers we’ve seen since October 2009. The Canadian dollar responded by dropping almost one cent on Friday, and finds itself struggling to stay in 1.02 territory. The Bank of Canada has talked about raising interest rates (which is bullish for the Canadian dollar), but will be hard-pressed to follow through, given these low inflation levels.

The markets were treated to a host of US releases last week, and for the most part, the results disappointed. US Inflation and manufacturing numbers fell below expectations, and housing numbers were also weak. Unemployment Claims, one of the most important releases and often a market-mover, had looked impressive in recent readings. However, the key indicator couldn’t keep pace last week, as the number of new claims jumped to 360 thousand, much higher than the estimate of 332 thousand. There was some good news from Building Permits, which were up nicely. On Friday, there was some relief from UoM Consumer Sentiment which jumped from 72.3 points to 83.7 points. This was well above the estimate of 77.9 points, and points to a sharp increase in consumer confidence. However, the host of weak US numbers we saw last week will again bring into question the extent of the US recovery, which has not been able to demonstrate sustained growth and continuous positive releases.

The Federal Reserve has not been in the spotlight recently, but that could change if the Fed modifies its current round of quantitative easing, which involves the purchase of $85 billion in assets each month. The Fed will be tempted to act if it feels that the US recovery has gained more traction, giving it some room to ease up on QE. Last week, John Williams, president of the Federal Reserve Bank of San Francisco, stated that the Fed could begin reducing QE this summer and terminate bond buying late in 2013. As the QE program is dollar negative, any moves by the Fed to wind up QE would be bullish for the dollar at the expense of the euro. So traders can expect any new developments (real or rumor) regarding QE to impact on the currency markets. We should get a better idea of where the Fed stands on Wednesday, when the minutes of the FOMC’s last policy meeting, and Fed chairman Bernard Bernanke testifies before Congress.

USD/CAD for Tuesday, May 21, 2013

USD/CAD 1.0286 H: 1.0286 L: 1.0243

USD/CAD Technical

USD/CAD continues to trade close to the 1.03 line. The pair is testing support at 1.0282, and this line could fall if the retreating Canadian dollar shows any improvement. There is a stronger support level at 1.0229. On the upside, the pair is facing resistance at 1.0337. This is followed by a stronger line of resistance at 1.0442. This line has held firm since June 2012.

• Current range: 1.0282 to 1.0337

Further levels in both directions:

• Below: 1.0282, 1.0229, 1.0157, 1.01, 1.0041 and 1.00
• Above: 1.0337, 1.0442, 1.0502 and 1.0658.

OANDA’s Open Positions Ratio

USD/CAD ratio is pointing towards long positions in the Tuesday session. This is not reflected in what we are currently seeing from the pair, as the US dollar has posts gains. We are still seeing a slight majority in favor of short positions, indicating that trader sentiment is slightly biased towards the pair reversing direction and the Canadian dollar improving.

The US dollar continues to put pressure on the Canadian currency, as it once again tests the 1.03 level. There are no numbers coming out of Canada or the US on Tuesday, so we could see some drifting from the pair. Wednesday will likely see more movement, as both countries release major data. As well, the Federal Reserve will be in the spotlight, as Bernard Bernanke testifies on Capitol Hill and the Fed releases the minutes of its most recent policy meeting. 

USD/CAD Fundamentals

• 14:00 US Treasury Secretary Jack Lew Speaks.
• 15:30 US FOMC Member James Bullard Speaks.
• 16:45 Bank of Canada Governor Mark Carney Speaks.
• 17:00 US FOMC Member William Dudley Speaks.

*Key releases are highlighted in bold

*All release times are GMT

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.