USD/CAD edges higher as Yellen pledges “continuity” for Fed monetary policy

The loonie, as the Canadian dollar is best known, declined against its US counterpart after the new Federal Reserve Chairman Janet Yellen, said the Federal Reserve was likely to continue scaling back its monetary stimulus in measured steps. However, she also added that the labor market recovery was still fragile and more work needed to be done, even though the unemployment rate dropped to a 5-year low in January.

USD/CAD reached a session high at 1.1091 at 00:30 GMT, after which the pair traded 1.1064 at 15:07 GMT, adding 0.08% on a daily basis. Support was likely to be received at February 10th low, 1.1019, while resistance was to be encountered at February 6th high, 1.1122.

In prepared remarks before her testimony to the Republican-controlled House Financial Services Committee, Yellen said the Fed will “likely reduce the pace of asset purchases in further measured steps at future meetings”, if the labor market continues to recover and inflation rises.

She underscored “continuity” in the Federal reserve monetary policy, emphasizing that she strongly approves the approach of her predecessor, Ben Bernanke.

The current monthly bond-buying program was started in September 2012 and since then the US jobless rate has declined 1.5% to reach a 5-year low at 6.6% in January, but according to Yellen the rate remains “well above levels” the central bank regards as consistent with maximum sustainable employment.

The Fed Chairman also reiterated that the pace of cutting back Fed stimulus was not on a “preset course”, and added the central bank planned to keep interest rates at zero “well past” the time the jobless rate falls below 6.5%.

Meanwhile, the loonie came under selling pressure yesterday, following a report by the Canadian Mortgage and Housing Corporation that showed housing starts in the country rose to 180 248 in January, trailing analysts’ estimates of an increase to 185 000. January’s reading was the lowest number of housing starts since May 2013, while also adding to bearish sentiment, December’s figure was downward revised to 187 100, from initial estimates of 189 672 newly-started residential buildings.

However, Statistics Canada reported on Friday that 29 400 more Canadians were hired in January, which outstripped analysts’ projections of 20 000 newly-hired employees. The data came after employers hired 44 000 fewer people in December. The increase was mainly driven by more full-time added jobs, whose number advanced to 50 500 in January, after a slump of 56 000 in the previous month. The increase in full-time positions offset a drop in part-time jobs, whose figure declined by 21 100, after a 12 100 gain a month ago.

A separate report revealed that the Canadian unemployment rate reached 7% in January, exceeding analysts’ expectations of a drop to 7.1% and after December’s reading of 7.2%.

Elsewhere, EUR/USD hit a session high at 1.3683 at 08:25 GMT, after which the pair traded at 1.3671 at 10:07 GMT, adding 0.19% for the day. Support was likely to be received at February 10th low, 1.3618, while resistance was to be encountered at January 29th high, 1.3685.