USD/CAD – Steady after Solid Canadian Inflation Data

The Canadian dollar is steady against its US cousin, following the release of strong Canadian inflation data. Core CPI and CPI both climbed sharply from the February readings, and easily beat market expectations. In the US, housing data continues to disappoint, as Pending Home Sales came in below the market estimate.

There was good news from Canada as Core CPI, one of the most important economic indicators, climbed from 0.1% in February to 0.8% in the March reading. This easily beat the estimate of 0.3%. Not to be outdone, CPI rose to 1.2% from 0.1% last month, its sharpest rise in more than six years. The estimate stood at 0.6%. The markets will be carefully watching the GDP release on Thursday. In the US, Pending Home Sales declined for the second time in three tries, dropping 0.4%. This was below the estimate of -0.3%, and comes just one day after another key housing indicator disappointed, as New Home Sales fell well below expectations. It hasn’t been a great week for the US, which posted weak manufacturing and consumer confidence numbers on Tuesday.

Last week’s crisis over the Cyprus bailout agreement reached a fever pitch, and there was even talk that the island country might exit the Eurozone if the ECB carried out its threat to cut off emergency funds. Although a new bailout agreement was reached on Monday, the lack of details has left the markets wary. With a lingering fear of a bank run in Cyprus, all banks throughout the country will remain closed until Thursday. The size of the haircut imposed on accounts larger than 100,000 euros is still not clear. Meanwhile, the head of the Eurogroup, Dutch finance minister Jeroen Dijsselbloem, stated that the Cyprus deal could serve as a template for future bank restructurings in the Eurozone. Dijsselbloem later backtracked on these comments, but his ill-timed remarks have likely made holders of large deposits in other zone countries even more jittery.

The new Bank of Japan Governor, Haruhiko Kuroda, continues to make headlines, as the markets seem to be hanging on every word of his. Kuroda has made no secret of his plans to implement further monetary easing, although he has been short on specifics. On Tuesday , Kuroda revealed a few of his closely-held cards and stated that the BOJ will consider abolishing a rule which limits the amount of government bonds that the BOJ is permitted to purchase. Further, the central bank will discuss extending the maturity of such bonds from the current three years to five years. So we could see some important developments at next week’s BOJ policy meeting.

USD/CAD for Wednesday, March 27, 2013

1.0173 H: 1.0195 L: 1.0150

USD/CAD Technical

USD/CAD has edged lower, as the pair dropped to the mid-1.02 range. The pair is receiving support at 1.0157. This is a weak line, and could face further testing if the Canadian dollar shows improvement. There is stronger support at the round number of .1.01. On the upside, 1.0229 is the next line of resistance. This is followed by resistance at 1.0282. This line was last tested a week ago, when the Canadian dollar started a modest rally.

• Current range: 1.0157 to 1.0229

Further levels in both directions:

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

OANDA’s Open Position Ratios

USD/CAD ratio is showing little movement in Wednesday trading.  This is in line with what we are seeing from the currency pair, as USD/CAD has not shown substantial movement. Short positions enjoy a commanding majority in the ratio, indicating a strong bias towards the Canadian dollar making more gains against the greenback.

Despite solid inflation numbers out of Canada, the loonie has not made much headway against the US dollar, as the pair trades in the 1.0270 range. With the release of Canadian GDP on Thursday, we could see more volatility from the pair, depending on market reaction to this key economic indicator.

USD/CAD Fundamentals

• 12:30 Canadian Core CPI.  Estimate 0.3%. Actual 0.8%
• 12:30 Canadian CPI. Estimate 0.6%. Actual 1.2%
• 14:00 US Pending Home Sales. Estimate -0.3%. Actual -0.4%
• 14:30 US Crude Oil Inventories. Estimate 1.5M. Actual 3.3M
• 15:00 US FOMC Member Charles Evans Speaks
• 15:30 US FOMC Member Eric Rosengren Speaks

*Key releases are highlighted in bold

*All release times are GMT

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