USD/CAD – Higher As Markets Await US PMI Release

USD/CAD has reversed directions to start off the new trading week, as the pair has moved higher and is trading in the mid-1.06 range. In economic news, Canadian inflation indicators continue to look sluggish, as the Raw Materials Price Index posted its sharpest decline in over two years. In the US, Final Services PMI came in within market expectations. Today’s highlight is ISM Non-Manufacturing PMI. The markets are anticipating a slight improvement in the December release. As well, the Senate holds a vote on the nomination of Janet Yellen for head of the Federal Reserve, which is expected to pass easily.

Canadian inflation levels have been anemic, and there was no change for the better as we start 2014. The Raw Materials Price Index, an important gauge of inflation in the manufacturing sector, slumped badly, falling 4.2%. This was its sharpest drop since June 2011. The estimate stood at -1.1%. The Industrial Product Price Index posted its first gain in three months, as it edged above the 0.0% forecast with a small gain of 0.1%. The weak inflation numbers point to a slow economy, and the Canadian dollar will be hard pressed to keep pace with the greenback if Canadian inflation indicators remain stuck in the doldrums.

US Unemployment Claims was almost identical to the previous week, coming in at 339 thousand. This was slightly above the estimate of 334 thousand. The markets will be keeping an eye on the year’s first Non-Farm Payrolls, which will be released next week. The NFP could impact on the next Fed decision regarding QE, after 2013 ended with QE tapering. While it was a small move, lowering asset purchases from $85 billion to $75 billion each month, the Fed did make a significant change its monetary policy, and this could have a significant positive impact on the US dollar. If US employment releases continue to look solid, we can expect further tapers in the near future, which could shake up the currency markets in favor of the US dollar.

On Friday, Federal Reserve Chair Bernard Bernanke gave a cautious thumbs-up to the US economy, saying that we could be in for a period of faster growth. Bernanke is winding up his eight years at the helm of the Fed, which included implementing a QE program in order to deal with a severe economic and financial crisis. The Fed has started to taper QE, with a cut of $10 billion to the $85 billion in assets which the Fed has been purchasing each month. The Fed will meet at the end of January, and another taper of $10 billion is a strong possibility. Meanwhile, Bernanke reiterated that the QE taper did not mean that interest rates would be increased.

USD/CAD for Monday, January 6, 2014

USD/CAD January 6 at 15:00 GMT

USD/CAD 1.0666 H: 1.0681 L: 1.0609

USD/CAD Technical

• USD/CAD has edged higher in Monday trading. The pair touched a low of 1.0609 early in the European session but has since moved to higher ground.
• On the downside, 1.0652 continues to provide weak support. This line saw activity earlier and this could continue during the day. This is followed by stronger support at 1.0573.
• 1.0783 is providing resistance. This is followed by resistance at 1.0852, which has remained intact since May 2010.
• Current range: 1.0652 to 1.0783

Further levels in both directions:

• Below: 1.0652, 1.0573, 1.0502, 1.0442 and 1.0337
• Above 1.0783, 1.0852, 1.10 and 1.1094

OANDA’s Open Positions Ratio

Long positions made significant gains in December, and as a result short positions make up a slight majority of the USD/CAD ratio. This indicates a slight trader bias towards the Canadian dollar gaining ground against the US currency.

The Canadian dollar is trading in the mid-1.06 range as we start the week. With the US releasing a key PMI later today, we could see some activity from the pair if the reading is not in line with market expectations.

USD/CAD Fundamentals

• 13:30 Canadian Raw Materials Price Index. Estimate -1.1%. Actual -4.1%.
• 13:30 Canadian Industrial Product Price Index. Estimate 0.0%. Actual 0.1%.
• 14:00 US Final Services PMI. Exp. 56.0 points. Actual 55.7 points.
• 15:00 US ISM Non-Manufacturing PMI. Exp. 54.6 points.
• 15:00 US Factory Orders. Exp. 1.8%.
• 22:30 US Fed Chairman Nomination Vote.

*Key releases are highlighted in bold

*All release times are GMT

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