By Kenny Fisher
The Canadian dollar continues to post gains against its U.S. counterpart in Monday trading. In the North American session, USD/CAD has dipped below the 1.06 line. The Canadian dollar has recouped last week's sharp losses following the Fed announcement to begin QE tapering next month. The loonie got some help on Monday from Canadian GDP, which rose 0.3% for the third straight month. Over in the U.S., Revised UoM Consumer Sentiment climbed to 82.5 points, slightly off the estimate of 82.9 points.
Earlier in the day, Canadian GDP posted a modest gain of 0.3%, but this was more than enough to beat the estimate of 0.1%. GDP has posted three straight readings of 0.3%, and each has beaten the estimate, as the Canadian economy continues to grow at a faster pace than expected. The release boosted the Canadian dollar, which has gained over one cent since late last week. On Friday, Canadian releases were mixed. Core Retail Sales gained 0.4%, easily surpassing the estimate of 0.0%. However, inflation indicators continue to disappoint. Core CPI declined by 0.1%, shy of the estimate of a 0.1% gain.
The week ended on a positive note in the U.S., as GDP climbed 4.1% in Q3, compared to 2.6% in the previous quarter. This was the indicator's sharpest gain since Q1 of 2010. The estimate stood at 3.6%. This excellent figure help push up the dollar, which had already posted sharp gains against the euro following the Fed’s taper announcement. Meanwhile, Unemployment Claims jumped to 379 thousand claims last week, up from 368 thousand the week before. This was well above the estimate of 336 thousand. The previous release's weak numbers were attributed to the holiday season, but two consecutive poor releases will certainly not comfort the markets. There was more bad news to follow, as Existing Home Sales and the Philly Fed Manufacturing Index fell short of their estimates. The Canadian dollar posted gains on Thursday following the weak U.S. releases.
After months of standing on the sidelines, Federal Reserve Chairman Bernard Bernanke finally played his hand on Wednesday. At its policy meeting, the Fed announced that it was tapering its QE program by $10 billion a month, commencing in January. This will reduce the Fed's asset purchases to $75 billion every month, comprised of $40 billion in Treasuries and $35 billion in mortgage bonds. The announcement came as somewhat of a surprise, as most analysts had expected the Fed to hold off on any QE reductions until early next year. The currency markets reacted sharply to the news, as the Canadian dollar lost over 100 points, as USD/CAD closed above the 1.07 level.
In its dramatic taper announcement, the Federal Reserve was careful to separate tapering from rate hike expectations. Fed chairman Bernard Bernanke stated that interest rates are likely to remain low even after the unemployment rate drops below 6.5%. Previously, the Fed had stated that it would start to consider rate increases when unemployment fell below this level. Bottom line? With the unemployment rate at 7.0%, it could be a while before we see higher interest rates in the U.S.
Overshadowed by the Fed's bombshell announcement, a two-year, bipartisan budget agreement is sailing through Congress. The deal was overwhelmingly approved in the House of Representatives last week and the Senate followed suit on Wednesday, passing the measure by a vote of 64-36. The bill will now go the President Obama for his signature before becoming law. The agreement sets limits on government spending for two years and reduces the deficit by a modest $23 billion. Democrats and Republicans both had criticism of the proposal, but there is general agreement in Washington that the compromise reached is a positive step which removes the threat of a shutdown which paralyzed the government in October for 16 days.
USD/CAD for Monday, December 23, 2013
USD/CAD December 23 at 14:45 GMT
USD/CAD 1.0582 H: 1.0654 L: 1.0582
- USD/CAD has posted gains on Monday. The pair pushed below the 1.06 line earlier in the North American session and the US dollar remains under pressure.
- On the downside, 1.0652 has reverted to a support role following the strong gains by the Canadian dollar. This is followed by support at 1.0573.
- 1.0652 has reverted to a resistance role as the Canadian dollar improves. This is followed by a resistance line at 1.0783.
- Current range: 1.0573 to 1.0652
Further levels in both directions:
- Below: 1.0573, 1.0502, 1.0442 and 1.0337
- Above 1.0652, 1.0783, 1.0852, 1.10 and 1.1094
OANDA's Open Positions Ratio
A narrow majority of the open positions in the USD/CAD ratio are short, indicating a slight trader bias towards the Canadian dollar gaining further ground.
The Canadian dollar continues to move higher and is trading in 1.05 territory. The currency continues to put pressure on the US dollar early in the North American session.
- 13:30 Canadian GDP. Estimate 01%. Actual 0.3%.
- 13:30 US Core PCE Price Index. Estimate 0.1%. Actual 0.1%.
- 13:30 US Personal Spending. Estimate 0.5%. Actual 0.5%.
- 13:30 US Personal Income. Estimate 0.4%. Actual 0.2%.
- 14:55 US Revised UoM Consumer Sentiment. Estimate 82.9 points. Actual 82.5 points.
- 14:55 US Revised UoM Consumer Inflation Expectations. Actual 3.0%.
*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.