USD/CAD – Fed’s Hawkish Statement Sends Loonie on Roller Coaster Ride

USD/CAD is steady on Thursday, following sharp volatility due to the Fed policy statement a day earlier. The pair is trading at 1.3190 early in the North American session. In Thursday’s economic news, US Advance GDP was close to the estimate, and Unemployment Claims beat expectations. In Canada, manufacturing inflation data surprised with a strong gain. Traders should keep a close eye on two key events on Friday – US Employment Cost Index and Canadian GDP.

The Federal Reserve surprised the markets with a hawkish policy statement on Wednesday. Prior to the statement, the Canadian dollar strengthened as the markets were expecting the Fed to avoid any hints about the timing of a rate hike. However, the Canadian currency coughed up these gains immediately after the Fed statement, which revived the possibility of a December hike. The Fed was clearer in its message than it has been for some time, saying that it would raise rates when there is further improvement in the US labor market and when inflation rises closer to the 2% target. The markets pounced on the following excerpt from the statement:

“In determining whether it will be appropriate to raise the target range at its next meeting, the Committee will assess progress–both realized and expected–toward its objectives of maximum employment and 2 percent inflation” [emphasis mine]

The next Fed meeting is mid-December, and the markets will be in alert mode for any further hints about a rate hike. As well, key US numbers will be closely monitored, especially employment and inflation data, as the strength of these numbers in the next several weeks will play a critical role in determining whether the Fed will press the rate trigger in December.

In the US, Advance GDP for the third quarter posted a gain of 1.5%. This was a much softer reading than the Final GDP in Q2 of 3.9%, but was very close to the forecast of 1.6%. Unemployment Claims beat the estimate for a fourth straight week, coming in at 260 thousand. The estimate stood at 264 thousand. In Canada, RMPI, an important gauge of manufacturing inflation, posted a strong gain of 3.2% in September, crushing the estimate of 1.2%. This was the first gain shown by the index since May.

USD/CAD Fundamentals

Thursday (Oct. 29)

• 12:30 Canadian RMPI. Estimate 1.2%. Actual 3.0%
• 12:30 Canadian IPPI. Estimate -0.1%. Actual -0.3%
• 12:30 US Advance GDP. Estimate 1.6%. Actual 1.5%
• 12:30 US Unemployment Claims. Estimate 264K. Actual 260K
• 12:30 US Advance GDP Price Index. Estimate 1.5%. Actual 1.2%
• 13:10 FOMC Member Dennis Lockhart Speaks
• 14:00 US Pending Home Sales. Estimate 1.1%
• 14:30 US Natural Gas Storage. Estimate 70B

Upcoming Key Events

Friday (Oct. 30)

• 12:30 Canadian GDP. Estimate 0.1%
• 12:30 US Employment Cost Index. Estimate 0.6%

*Key releases are highlighted in bold

*All release times are GMT

USD/CAD for Thursday, October 29, 2015

USD/CAD October 29 at 13:10 GMT

USD/CAD 1.3183 H: 1.3238 L: 1.3172

USD/CAD Technical

• USD/CAD was unchanged in the Asian session. The pair posted slight losses in European trading and this has continued in the North American trade.
• 1.3165 is an immediate support line.
• 1.3213 continues to be busy has switched to a resistance role. This weak line was tested earlier.
• Current range: 1.3165 to 1.3213

Further levels in both directions:

• Below: 1.3165, 1.3063 and 1.2930
• Above: 1.3213, 1.3327, 1.3457 and 1.3555

OANDA’s Open Positions Ratio

USD/CAD ratio is showing some movement towards long positions. Short positions still command a majority of positions (53%). This is indicative of trader bias towards USD/CAD moving to lower ground, consistent with the current movement of the pair.

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.