USD/CAD hits fresh 3-1/2 year highs after a contraction in the Canadian PMI

The loonie, as the Canadian dollar is best known, declined against the US dollar, following a report that showed a gauge, which tracks the Canadian economic activity unexpectedly contracted to 34-month low in December. In addition, the nations trade deficit widened, adding to bearish statement, in contrast with the US trade deficit which narrowed to the lowest since October 2009.

Having touched a session high at 1.0761 at 15:08 GMT, adding 1.01% for the day, also the pairs highest since May 2010. Support was likely to be received at January 6th low, 1.0609, while resistance was to be encountered at May 25th 2010 high, 1.0853.

A report by the Business and Purchasing Management Association, revealed that the Canadian economic activity, with its corresponding PMI unexpectedly contracted to 46.3 in December from 53.7 in the previous month. Analysts had forecast that the index will rise to 55.0.

The loonie was further pressured after a report by Statistics Canada revealed the nations trade deficit widened to 0.94 billion Canadian dollar in November, while analysts had expected the trade deficit to narrow to 0.15 billion Canadian dollars. In October the Canadian trade deficit was $0.91 billion Canadian dollars.

The data from the report showed that the Canadian exports remained at 39.78 billion Canadian dollars in November, the same as in October, while imports increased by mere 0.1% to 40.72 billion Canadian dollars.

Meanwhile, the greenback was supported after the US Commerce Department reported on Tuesday that the US trade deficit narrowed to $34.25 billion in November, defying analysts projections that the trade deficit will widen to $40.00 billion. In October the US trade deficit was downwardly revised from $40.64 to $39.33 billion.

Data showed that the US imports declined 1.4% to $229.1 billion, while exports rose 0.9% to a record high $194.9 billion.

The recent upbeat data reinforced speculation that Fed might decide to taper its stimulus program further, providing further support to the greenback.

The Federal Reserve Bank said on December 18th that it plans to reduce its monthly bond purchases in January to $75 billion from $85 billion. According to the median estimate of economists surveyed by Bloomberg on December 19th, the Federal Reserve may reduce the purchases in $10 billion increments over the next seven meetings, before ending the program, which tends to devalue the US currency, in December 2014.

Elsewhere, having reached a session low at 1.3611 at 06:25 GMT, EUR/USD lost 0.05% to trade at 1.3621 at 09:50 GMT. Support was likely to be received at January 6th low, 1.3572, also the pair’s weakest since December 5th, while resistance was to be met at January 6th high, 1.3653.