USD/CAD – Greenback Pushes Above Parity

The US dollar continued to make inroads against its Canadian counterpart, as USD/CAD crossed the parity line on Thursday. The pair posted more gains after the Bank of Canada maintained its interest rate level at 1.0%. In the US, there are a host of releases on Thursday, with the highlight being US Unemployment Claims. There are no Canadian releases on Thursday.

The US dollar reached the all-important parity line for the first time since mid-November, as the Bank of Canada set its benchmark interest rate for January. As expected, the BOC maintained the current level of 1.0%. The rate has been pegged at this level since 2010, so any change would have been a dramatic development. The BOC took a dovish view of the Canadian economy, stating that the economy has not improved as much as hoped, and that the economy was not expected to return to full capacity until the latter half of 2014. This means that unless there is a dramatic recovery, the BOC is unlikely to reduce interest rates anytime soon. The Canadian dollar retreated on the news, as the prospect of higher interest rates sooner rather than later make the currency more attractive to investors. In the US, the markets will be eyeing the release of Unemployment Claims later on Thursday. The indicator will be hard-pressed to repeat last week’s sizzling performance, as new claims hit a multi-year low.

It has been a tricky task to try and measure the extent of the US economic recovery, especially when US releases point in all directions. Last week’s unemployment claims were outstanding, and retail sales looked sharp. This was offset by weak manufacturing and consumer sentiment data. Both of these sectors continue to weigh on the US economy, making it difficult for the recovery to gain some traction. As well, the most recent housing numbers fell below the estimate. With the US economy continuing to send mixed signals, the uncertainty is likely to be reflected in the currency markets. In Washington, there was a new development in budget negotiations, which have been stalled due to sharp disagreements between the Republicans and Democrats. The Republicans have announced that they will table a proposal in Congress which would extend the debt ceiling until April 15. This would allow the U.S. government to borrow enough money to keep it fully operating for the next three months until the sides can reach an agreement. The two sides took a short breather to celebrate President Obama’s inauguration on Monday. With the parties far apart on the issue of spending cuts and how to deal with the staggering US debt, we can expect more fireworks on Capitol Hill before the spring thaw.

USD/CAD for Thursday, Jan 24, 2013

USD/CAD January 24  at 13:00 GMT

1.0014 H: 1.0016 L: 0.9991

USD/CAD continues its upward move, and has pushed across the parity line. There is weak support at 1.0003. This line has already been breached in Thursday trading, and could face more activity. The line of 1.0041 is stronger. On the downside, 0.9954 is providing support. This line has strengthened as the pair trades above the parity line.

Current range: 1.0003 to 1.0041.

Further levels in both directions:

• Below: 1.0003, 0.9954, 0.9898, 0.9833, 0.9809 and 0.9767.
• Above: 1.0041, 1.0157, 1.0207, 1.0286.

OANDA’s Open Position Ratios

With the US dollar climbing higher and reaching the parity level, we are seeing a very strong move in the USD/CAD ratio, towards short positions. Thanks to this recent movement, the short positions component is now the larger one, and reflects trader sentiment that favors a correction from the current upward trend.

The US dollar continues to push hard against the loonie, and has now gained close to two cents since mid-January. Thursday saw the greenback cross the critical parity level for the first time since mid-November. Will the upward momentum continue? With a tepid forecast by the Bank of Canada, investors will not be as keen to park their funds in Canadian assets, and this could mean more lossses for the Canadian dollar.

USD/CAD Fundamentals

• 13:30 US Unemployment Claims. Estimate 359K.
• 14:00 US Flash Manufacturing PMI. Estimate 53.2 points.
• 15:00 US CB Leading Index. Estimate 0.4%.
• 15:30 US Natural Gas Storage.
• 16:00 US Crude Oil Inventories. Estimate 2.8M.

*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.