USD/CAD touches fresh 4-year highs on speculation BoC may cut interest rates

The loonie, as the Canadian dollar is known, declined against its US counterpart to the lowest level since September 2009 amid speculation BoC may have to cut interest rates, following last weeks downbeat data.

Having hit a session high at 1.0992 at 09:20 GMT, USD/CAD traded at 1.0959 at 12:36 GMT, adding 0.10% for the day. Support was likely to be received at January 14th low, 1.0879, while resistance was to be met at September 28th 2009 high, 1.0994.

The Canadian dollar was under selling pressure after a series of downbeat reports increased bets Bank of Canada may signal interest-rate cut at the upcoming central banks policy meeting on January 22nd.

On Friday, the number of employed people in the country declined by 45 900 in December, the most since November 2011, after an increase of 21 600 in November. Analysts had expected that the Canadian employers will add 14 100 workers in December.

According to the report, the reduction in the number of employed people was mainly due to the enormous decline of full-time workers, whose number decreased by 60 000 in the last month, while part-time workers increased by 14 200. Adding to bearish sentiment, Canadian unemployment rate also increased to 7.2% in December from 6.9% in the preceding month.

Last week, 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.

Meanwhile, according to data by the Census Bureau, part of the US Department of Commerce, nation’s retail sales increased 0.2% in December, exceeding analysts’ expectations of a 0.1% increase. In November, retail sales gained 0.4%, after they have been revised downwards from earlier estimates of a 0.7% increase.

Core retail sales, which exclude sales of automobiles, rose 0.7% in December, after a downward revision to 0.1% from earlier estimates of a 0.4% increase in November. Retail sales are considered as a crucial indicator regarding the trend in consumer spending and overall economic development in the United States. Consumer spending has a key role as it accounts for almost 70% of the US economic growth.

The report provided support to greenback’s demand, as it favored the view that the Federal Reserve Bank may continue tapering during the year. Central bank’s policy makers said on December 18th that they will reduce monthly asset purchases to $75 billion from $85 billion, underscoring improving labor market conditions. The bank will probably continue to pare stimulus by $10 billion at each policy meeting before exiting the program in December, according to a Bloomberg News survey of 41 economists, conducted on January 10th. The Federal Open Market Committee is scheduled to meet next on January 28-29.

In addition, Fed President for Philadelphia Charles Plosser and Fed President for Dallas Richard Fisher, voting members of the Federal Open Market Committee this year, yesterday called for continued reduction of the Fed’s bond-buying program. Fisher said that he would strive to eliminate the program entirely “at the earliest practicable date”, while his colleague said he would prefer the stimulus program to be ended before late 2014.

Later in the day the United States is to report on the index of producer prices. The median estimate pointed that the PPI will advance 0.4% in December compared to a month ago, after in November it dipped 0.1%. A larger than projected increase would certainly heighten the appeal of the greenback.

A separate report is expected to show the performance of the first US manufacturing activity indicator during the current month, the New York Empire Manufacturing Index. Expectations pointed to an advance to 3.50 in January from 0.98 in December, with positive readings indicating that activity in the sector expanded.

Elsewhere, EUR/USD touched a session low at 1.3611 at 09:02 GMT, after which consolidation followed at 1.3616, losing 0.45% for the day. Support was likely to be received at January 10th low, 1.3574, while resistance was to be encountered at January 14th high, 1.3699, also the pair’s highest since January 2nd.