USD/CAD – Little Change as Canadian GDP Meets Expectations

USD/CAD is showing little movement, as the pair continues to trade in the 1.0020 range. The Canadian dollar has clawed its way back against the greenback, as the pair was testing the 1.01 line earlier this week. Both countries released GDP, with very different results. In the US, the Q4 GDP release looked dismal, posting its first decline since 2009. Meanwhile Canadian GDP, released every month, was within market expectations. Back in the US, the markets have been busy. On Wednesday, ADP Non-Farm Employment Change, which precedes the official US government release, came in well above expectations. The US Federal Reserve wrapped up its policy meeting, and said that QE3 would continue. The markets were disappointed with Thursday’s key release, US Unemployment Claims, which failed to meet the estimate.

US key releases continue to be mixed, pointing to a bumpy recovery. The markets got a jolt from an abysmal GDP reading, as the US economy declined by 0.1% in Q4. Although a very modest loss, there is bound to be negative market reaction, as this was the first decline since 2009, and the markets had anticipated a 1.1% gain. There was some positive employment news, as the ADP Non-Farm Employment Change came in at 192 thousand new jobs, well above the estimate of 164 thousand. However, Unemployment Claims was a major disappointment. For the first time in four weeks, the number of new claims rose, reaching 368 thousand. This was higher than the market forecast, which stood at 362 thousand. Friday sees the release of additional employment data, Non-Farm Payrolls and the Unemployment Rate. If these releases are not to the market’s liking, we could see USD/CAD respond with some volatility. In Canada, the GDP posted a modest gain of 0.3%, good enough to beat the estimate, which stood at 0.2%. This was the key indicator’s best performance since June. The markets will be hoping that the modest improvement indicates that the Canadian economy is headed in the right direction.

The markets were carefully monitoring this week’s Federal Reserve meeting, but there were no surprise developments as the powerful US central bank wrapped up a two-day policy meeting. Analysts were looking for clues as to an end date for the current Quantitative Easing program (QE3), but no such hints were forthcoming. The Fed stated it would continue its open-ended QE3 program until the outlook for the labor market “improves substantially”. This put to rest any doubts that the current round of QE, under which the Fed is purchasing $85 billion a month in securities, will be terminated anytime soon. At the same time, the Federal Reserve took note of increased job hirings, stronger consumer and business spending, and some improvement in the US housing sector. The Fed also maintained its ultra-low benchmark interest rate, saying there would be no change until unemployment drops below 6.5%. With US unemployment close to 8%, we will likely be hearing this refrain for the foreseeable future.

USD/CAD for Thursday, Jan 31, 2013

USD/CAD January 31 at 14:45 GMT

1.0008 H: 1.0035 L: 1.0006

USD/CAD continues to trade slightly above the parity line, and is not showing much movement. The proximate resistance and support lines remain in place (R1 and S1 above). There is resistance at 1.0041. This line has been busy during the week, and could face further activity. This is followed by strong resistance at the round number of 1.01. The pair failed to breach this line, and has since retreated to lower levels. On the downside, 1.0003, which is protecting the parity line, is under pressure. The next support level is at 0.9954.

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, 1.01, 1.0157, 1.0207, 1.0286, 1.0365 and 1.0443.

OANDA’s Open Position Ratios

USD/CAD ratio has switched directions, as we are seeing movement away from long directions. This could be an indication that the listless currency pair will break out and move downwards. This has been the prevailing trend for most of the week, as the Canadian dollar pushes towards the parity line.

After being pushed across the parity line late last week, the Canadian dollar has managed to stop the greenback’s momentum. The pair is currently trading very close to the parity line. This could well continue, although unexpected readings from upcoming US employment data could affect the movement of USD/CAD.

USD/CAD Fundamentals

• 12:30 US Challenger Job Cuts. Actual -24.4%.
• 13:30 Canadian GDP. Estimate 0.2%. Actual 0.3%.
• 13:30 Canadian RMPI. Estimate 0.9%. Actual -2.0%.
• 13:30 Canadian IPPI. Estimate 0.0%. Actual 0.1%.
• 13:30 US Unemployment Claims. Estimate 362K. Actual 368K.
• 13:30 US Core PCE Price Index. Estimate 0.1%. Actual 0.0%.
• 13:30 US Employment Cost Index. Estimate 0.6%. Actual 0.5%.
• 13:30 US Personal Spending. Estimate 0.4%. Actual 0.2%.
• 13:30 US Personal Income. Estimate 0.7%. Actual 2.6%.
• 14:45 US Chicago PMI. Estimate 51.1 points. Actual 55.6 points.
• 15:30 US Natural Gas Storage. Estimate -202B.

*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.