USD/CAD – Canadian Dollar Shows More Movement

USD/CAD is showing some movement, as it tries to break out of its recent narrow range. The pair lost some ground earlier on Tuesday, but has changed direction. There are no Canadian releases on Tuesday. It is a quiet day in the US, with only two releases, both of which are third-tier – IBD/TIPP Economic Optimism and Consumer Credit. There was a major development earlier on Tuesday, with an announcement that the Japanese government would purchase bonds from the European Stability Mechanism, which is the Eurozone's bailout fund. The first debt auction will be on Tuesday, with three-month notes being offered with a value of about 2 billion euros.

The markets breathed a sigh of relief last week, as the fiscal cliff agreement was reached in the US Congress. However, any celebrating would be premature, as it appears that this was just the first round of more bruising battles ahead. The hard-fought agreement, which was preceded by months of acrimony and bad blood between the Republicans and Democrats, was criticized by many analysts and economists as a deal comprised of the lowest common denominator which both sides could reluctantly compromise and agree on. However, the agreement left two critical issues for another day – the debt ceiling and spending cuts. The problem is, the clock on those issues is also winding down, as the debt ceiling will be reached in February, and action will have to be taken to avoid a default on the country's debt. Otherwise, the real possibility of a US default will likely cause turmoil in the markets.

Analysts are scratching their heads after Canada posted some excellent employment numbers late last week. The numbers were very strong, but the figures are at odds with other economic indicators which point to weak growth for the Canadian economy. One senior economist went so far as to state that the numbers “defy gravity”. However, the employment data was particularly encouraging because the gains were seen throughout the economy.

The positive employment data was followed by a solid Ivey PMI release, as the index pushed back above the 50 point threshold, an indication of economic expansion. There is hope that 2013 will see an improvement in the global economy , which would translate into increased demand for Canadian oil and other raw materials, and help to boost both the Canadian economy and the Canadian dollar. The Canadian economy remains in excellent shape compared with many other Western countries and both the IMF and OECD have predicted that Canada will continue to be among the strongest growing economies in the G-7 next year.

In economic releases, two consumer indicators will be published in the US on Tuesday, Economic Optimism and Consumer Credit. Economic Optimism has been falling, as the indicator continues to point to declining confidence in the US economy. Another weak reading could hurt the US dollar. Consumer Credit looked sharp in December, but the markets are expecting a drop in the upcoming release. The markets will be keeping a close eye on Canadian Housing Starts and Building Permits, which will be released later in the week. If these indicators can beat market expectations, it would point to an improvement in the housing market, and could help boost the Canadian dollar.

USD/CAD
Jan 8 at 13:55
GMT

0.9868 H: 0.9881 L: 0.9844

USD/CAD Technical