Market Overview

USD/CAD – Edges Lower Despite Positive Canadian Data

The Canadian dollar has edged lower against its US counterpart, as the pair is showing some upward movement early in the North American session. The loonie has done very well against the greenback, since mid-November, when US/CAD was above the parity line. However, the past couple of days have seen the greenback bounce back.

Is the loonie rally over? In today's economic releases, Wholesale Sales looked very sharp, posting a 0.9% gain in November. This easily exceeded the market estimate of 0.4%. The indicator had a sharp rebound, after posting its worst reading of the year, a 1.4% decline, back in October. The strong Canadian wholesale reading is giving the markets hope that the Canadian economy is rebounding after a sluggish performance in Q3.

US Building Permits, a key release, came in slightly above the estimate, pointing to renewed activity in the US housing sector. On Capitol Hill, negotiations over the approaching fiscal cliff continue at an intensive pace between the Democrats and Republicans. Although there have not been any dramatic breakthroughs to report, the markets are cautiously optimistic that lawmakers in Congress will reach an agreement shortly. Polls indicate that most Americans blame the Republicans for the impasse and failure to resolve the crisis.

The Republicans have responded by softening their positions and rhetoric, and are sounding more conciliatory. They have reluctantly agreed to tax hikes on the highest income earners, but the Democrats want these hikes to cover those earning more than $400,000 (previously $250,000). Other significant gaps remain between the two sides, especially with regard to the extent of spending cuts to Federal programs. With Q4 behind us, the markets are closely monitoring the progress in the talks.

So how does the fiscal cliff crisis south of the border mean for USD/CAD? Since the Canadian continues to have strong ties with US fiscal cliff discussions, any sense of a setback in negotiations will hurt the loonie, as investors will likely scurry to the safe-haven US dollar. Conversely, if there are signs of progress in the discussions on Capitol Hill, the Canadian dollar could take advantage and make some inroads against the greenback. As we near the end of the year and the fiscal cliff deadline gets closer, any announcements about the progress of the negotiations (or lack thereof) could impact on USD/CAD.

USD/CAD for Wednesday, Dec 19, 2012

USD/CAD
Dec 19 at 14:55 GMT

0.9880 H: 0.9880 L: 0.9850

USD/CAD Technical

S3 S2 S1 R1 R2 R3
0.9767 0.9812 0.9845 0.9909 1.00 1.0040

 

USD/CAD has broken out of a narrow range as it moves higher. The next resistance line is above the 0.99 line, at 0.9909. We could see this line under pressure if the pair continues to climb. On the downside, 0.9845 has strengthened in support as USD/CAD trades at higher levels.
• Current range: 0.9845 to 0.9909.
Further levels in both directions:
• Below: 0.9845, 0.9812, 0.9767, 0.9625, 0.9526 and 0.9445.
• Above: 0.9909, 1.00, 1.0041, 1.0157 and 1.0252.

OANDA's Open Position Ratios
Trader sentiment for USD/CAD is remains biased in favor of long positions. The US dollar continues to edge higher. With Q4 behind us, the loonie is closely tied to the fiscal cliff discussions, and could lose more ground if the crisis appears to be getting worse.

USD/CAD is moving up, continuing a trend which started yesterday (Dec. 18). Absent dramatic news regarding the fiscal cliff, look for the US dollar to make further modest gains at the expense of the Canadian dollar.

USD/CAD Fundamentals
• 13:30 Canadian Wholesale Sales. Estimate. +0.4%. Actual +0.9%.
• 13:30 US Building Permits. Estimate 0.88M. Actual 0.90M.
• 13:30 US Housing Starts. Estimate 0.87M. Actual 0.86M.
• 15:30 US Crude Oil Inventories. Estimate -0.9M.

*Key releases are highlighted in bold
*All release times are GMT

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