USD/CAD – Slumping Canadian Dollar Slips to 6-Month Lows, US Consumer Confidence Next

The Canadian dollar is under pressure on Tuesday, following sharp losses in the Monday session. Currently, the pair is trading at 1.3220. On the release front, it’s another quiet day. In the US, we’ll get a look at CB Consumer Confidence, a key consumer indicator. The estimate for the September report stands at 98.6 points. There are no Canadian releases on the schedule.

The Canadian dollar continues to struggle, having lost 150 points since Friday. USD/CAD touched 1.3275 on Tuesday, as the Canadian dollar slumped to its lowest level since March. The slide started after weak Canadian consumer indicators on Friday. Core Retail Sales was the biggest disappointment, as the market forecast of +0.5% was dashed by a weak reading of -0.1%. Core CPI remained stagnant at 0.0% for a third straight month, underscoring persistent low inflation levels. The BoC has stated its concerns about weak inflation, and these soft releases will add pressure on the bank to consider reducing interest rates at its October policy meeting. The Canadian dollar is sensitive to oil price movement, and with OPEC members meeting this week in Algiers, we could see some volatility from crude which could affect the movement of USD/CAD.

The Fed stayed on the sidelines last week, holding interest rates at 0.25%. This was expected, but there was some drama as three of the ten FOMC members dissented with the decision, preferring to raise rates immediately by a quarter-percentage point. This significant dissent within the FOMC underscores continuing divisiveness within the Fed, with one economist calling the Fed decision “one of the most decisive FOMC meetings in recent memory”. Recent comments from FOMC members regarding a rate hike have conflicted with each other, and the mixed messages have left the markets confused. The surprising level of dissent will do little to restore market confidence in the Fed, which back in December 2015 promised up to four rate hikes in 2015, but has yet to raise rates this year.

The Fed policy statement was generally upbeat and broadly hinted at a December rate hike. However, the markets can be forgiven for remaining somewhat skeptical, as the Fed has previously talked about a strong US economy and failed to follow up with a rate hike. Currently, a rate hike is priced in at 51 percent, but plenty can happen until the December policy meeting (the Fed is unlikely to make a move in November, just ahead of the US presidential election). The Fed has consistently stated that the next rate hike will be data-dependent, which means that stronger economic numbers, especially on the inflation front, will increase the likelihood of a December hike.

USD/CAD Fundamentals

Tuesday (September 27)

• 13:00 US S&P/CS Composite-20 HPI. Estimate 5.0%
• 13:45 US Flash Services PMI. Estimate 51.1
• 14:00 US CB Consumer Confidence. Estimate 98.6
• 14:00 US Richmond Manufacturing Index. Estimate -2
• 15:15 US FOMC Member Stanley Fischer Speaks

* Key releases are in bold

*All release times are EDT

USD/CAD for Tuesday, September 27, 2016

USD/CAD September 27 at 7:00 GMT

Open: 1.3229 High: 1.3275 Low: 1.3162 Close: 1.3221

USD/CAD Technical

• USD/CAD posted sharp losses in the Asian session but has reversed directions in European trade
• 1.3120 is providing strong support
•  1.3253 was tested earlier in resistance and is a weak line

Further levels in both directions:

• Below: 1.3120, 1.3028, 1.2922 and 1.2815
• Above: 1.3253, 1.3371 and 1.3457
• Current range: 1.3120 to 1.3253

OANDA’s Open Positions Ratio

USD/CAD ratio is unchanged in the Tuesday session. Currently, short positions have a strong majority (65%), indicative of trader bias towards USD/CAD continuing to move downwards.

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