USD/CAD – Loonie Moves Lower as Nervous Markets Monitor Italy Crisis

The US dollar continues to post gains against its Canadian cousin, and has crossed over the 1.03 level. USD/CAD has gained about a cent against in this week’s trading, continuing the pair’s upward momentum. The markets remain jittery as the fallout from the deadlocked Italian election continues, and this has hurt the Canadian dollar as investors flock to the safe-haven US currency. On Thursday, both US and Canadian releases were mixed. The markets are eagerly awaiting Canadian GDP, which will be released later on Friday. Today’s major release from the US is ISM Manufacturing PMI.

The shockwaves from the election in Italy have rapidly spread beyond Italy, and Eurozone politicians are trying to put a brave face on the surprising results. In Germany, Foreign Minister Guido Westerwelle called on Italy to form a stable government as quickly as possible. Westerwelle noted that the entire Eurozone was “in the same boat” with regard to the debt crisis, and cooperation between the Eurozone members was essential. French Finance Minister Pierre Moscovici tried to sound reassuring, stating that the results did not threaten stability in the Eurozone, but at the same time, it was essential that Italy gets its act together and form a new government. However, Spain’s foreign minister, Jose Garcia-Margallo did not hide his pessimism, warning that the election results could have dire consequences for both Italy and Europe. As the third largest economy in the Eurozone, the crisis in Italy has rattled markets worldwide, and currencies like the Canadian dollar could take a dive if the political stalemate continues.

The US Federal Reserve was in the spotlight this week, as Fed Chief Bernard Bernanke was busy testifying before the Senate and the House of Representatives. Bernanke sought to reassure the markets that the Fed was intent on continuing the current round of QE. Bernanke dismissed fears that the Fed’s current monetary policy could result in higher inflation or lead to a stock market bubble. There had been some speculation after the release of minutes from the most recent policy meeting, that the Fed was contemplating an end to QE, but Bernanke stated that Fed plans to continue QE and the current policy of ultra-low interest rates for the near future.

With the markets glued to developments in Italy this week, US economic data was pushed to the sidelines. However, the economic news out of the US was generally positive. CB Consumer Confidence and New Home Sales both looked very sharp. There was also good news from the US manufacturing industry, as the Richmond Manufacturing Index hit 6 points, easily beating the forecast of -4. Core Durable Goods Orders jumped 1.9%, while Pending Home Sales gained a strong 4.5%. Both key releases were well above expectations. The fly in the ointment was GDP, which posted a negligible gain of 0.1%, missing the estimate. The poor reading raises concerns about the health of the US economy. Unemployment Claims dropped nicely, easily beating the forecast. All in all, US releases were positive, and the markets will be hoping that the good news continues into March. Canada wraps up the trading week with the quarterly release of GDP, and the markets are bracing for a decline in Canada’s economy. If the key indicator does not beat market expectations, we could see the loonie lose more ground against the US dollar.

USD/CAD for Friday, Mar 1, 2013

USD/CAD Mar 1 at 12:05 GMT

1.0327 H: 1.0328 L: 1.0294

USD/CAD Technical 

USD/CAD continues to display upward momentum, as the pair has pushed across the 1.03 level for the first time since June 2012. The pair faces resistance at 1.0361, but this line could find itself under pressure if the US dollar continues to push higher. There is stronger resistance at 1.0446. The pair is receiving weak support at 1.0282. The next support level is at 1.0229. 

• Current range: 1.0282 to 1.0361

Further levels in both directions:

• Below: 1.0282, 1.0229, 1.0157, 1.01, 1.0041, 1.00 and 0.9940
• Above: 1.0361, 1.0446, 1.0523 and 1.0642

OANDA’s Open Position Ratios

The USD/CAD ratio has reversed directions, and is now pointing to movement towards long positions. This activity is consistent with what we are seeing from the pair, as the US dollar continues to post gains at the expense of the Canadian currency.

The US dollar has enjoyed a good week, climbing about a cent against the loonie. USD/CAD is now above the 1.03 line. Will the upward trend continue into March? The US dollar is benefitting from the crisis in Italy, as nervous investors opt for the safety of the greenback. Canada will release its Q4 GDP numbers later on Friday, and if the reading is weak, as anticipated, the loonie could lose more ground against the surging US dollar. 

USD/CAD Fundamentals

• 13:30 Canadian GDP. Estimate -0.2%. 
• 13:30 US Core PCE Price Index. Estimate 0.1%.
• 13:30 US Personal Spending. Estimate 0.2%.
• 13:30 US Personal Income. Estimate -2.3%.
• 14:00 US Final Manufacturing PMI. Estimate 55.2 points.
• 14:55 US Revised UoM Consumer Sentiment. Estimate 76.3 points.
• 14:55 US Revised UoM Inflation Expectations.
• 15:00 US ISM Manufacturing PMI. Estimate 52.7 points.
• 15:00 US Construction Spending. Estimate 0.6%.
• 15:00 US ISM Manufacturing Prices. Estimate 57.3 points.
• All Day: US Total Vehicle Sales. Estimate 15.1M.
• Saturday, 3:00 Fed Chairman Bernard Bernanke Speaks.

*Key releases are highlighted in bold

*All release times are GMT

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