USD/CAD – Loonie Continues to Drop After Weak Wholesales Sales Release

The Canadian dollar continues to lose ground against its US counterpart, continuing the trend we’ve seen all week. USD/CAD was trading in the mid-1.04 range in the North American session. The loonie has been hurt by Canadian Wholesales Sales, which posted a sharp decline. In the US, Existing Home Sales looked sharp, posting its best numbers in over three years. The key indicator jumped from 5.08 million to 5.39 million, easily beating the estimate of 5.15 million. Later on Wednesday, the FOMC releases the minutes of the Fed’s most recent policy meeting. There are no Canadian releases on Wednesday.

There has been plenty of speculation about when the Federal Reserve will scale back its QE program. Currently, the Fed is purchasing $85 billion in assets every month, and Fed chair Bernard Bernanke has indicated that the Fed plans to taper QE if the US economy continues to improve. However, Bernanke has been vague about when the Fed might act, leading to speculation and uncertainty in the markets. There has been talk about the Fed tapering QE as early as September and the release of the FOMC minutes on Thursday could shed some light on the Fed’s intentions. Since tapering QE is a dollar-positive event, any hints in the minutes about scaling back QE could boost the US dollar.

The Canadian economy continues to struggle, as Wholesale Sales, an important indicator of consumer spending, declined 2.5%. This was way off the estimate of -0.5%, and underscores weak consumer spending, which is critical for the economy to recover. Core Retail Sales will be released on Thursday and the markets are anticipating a weak gain of 0.1%. If the indicator fails to meet the estimate, we could see the Canadian dollar lose more ground.

USD/CAD for Wednesday, August 21, 2013

USD/CAD 1.0441 H: 1.0448 L: 1.0396

USD/CAD Technical

USD/CAD continues to march higher in Wednesday trading. The pair crossed above the 1.04 level in the Asian session and has continued to climb in European trading. USD/CAD is testing resistance at 1.0442. This line was briefly breached early in the North American session and could break if the US dollar continues to move upwards. This is followed by stronger resistance at 1.0502. On the downside, the pair is receiving support at 1.0337. This is followed by 1.0282, which has strengthened as the pair trades at higher levels.

• Current range: 1.0337 to 1.0442

Further levels in both directions:

• Below: 1.0337, 1.0282, 1.0229, 1.0157, 1.0062 and 1.00
• Above: 1.0442, 1.0502, 1.0573, 1.0652

OANDA’s Open Positions Ratio

Looking at the USD/CAD ratio, short positions continue to comprise a majority of the positions . This indicates trader bias in favor of the Canadian dollar recovering and moving to higher ground.

USD/CAD continues to move higher. Will the upward trend continue? If there is some unexpected news about QE in the minutes of the FOMC, we could see the US dollar gain more ground.

USD/CAD Fundamentals

• 14:00 US Existing Home Sales. Estimate 5.15M. Actual 5.39M.
• 14:30 US Crude Oil Inventories. Estimate -1.6M. Actual -1.4M.
• 18:00 US FOMC Meeting Minutes.

*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.