Forex Market: USD/CAD touches two-week lows following BoC decision, US data

The loonie, as the Canadian dollar is best known, advanced to the strongest level in two weeks against its US counterpart, after BoC decided to maintain its interest rate, citing economic growth and inflation that “continue to strengthen gradually”. Meanwhile, companies operating in the US private sector added fewer-than-expected jobs in February, while activity in the US sector of services grew at the weakest level since August 2010, adding to concerns the US economy may slow its growth.

USD/CAD touched a session low at 1.1035 at 15:21 GMT, after which the pair trimmed gains to trade at 1.1062 at 15:55 GMT, losing 0.27% for the day. Support was likely to be received at February 19th low, 1.0911, while resistance was to be encountered at March 4th high, 1.1118.

Bank of Canada kept its main interest rate unchanged at 1%, where it has remained since September 2010. The decision came after unexpected gains in output and inflation, which eased pressure on the central bank to loose monetary policy.

“The fundamental drivers of growth and inflation in Canada continue to strengthen gradually,” policy makers led by Stephen Poloz, said in a statement from Ottawa today, cited by Bloomberg. “The Bank judges that the balance of risks remains within the zone for which the current stance of monetary policy is appropriate.”

The loonie weakened to more than four-year low of 1.1224 against the US dollar on January 31st, after the central bank said earlier in January the Canadian currency was still too strong and was hurting exporters. That came after Decembers statement that warned inflation rate may stay below Bank of Canadas 2% target for a prolonged period of time.

However, concern over weak price pressure was relieved last month, after official data showed the nation’s inflation rate accelerated at a 1.5% annualized rate in January, which is the highest pace in 1-1/2 years amid surge in home heating costs.

A separate report, issued last week, revealed that the Canadian economy expanded at a 2.9% annualized pace in the fourth quarter from a quarter ago, confounding analysts expectations of a slowdown to 2.6% from 2.7% in the third quarter.

Meanwhile, greenbacks demand was pressured after Automatic Data Processing reported today that companies operating in the US private sector added 139 000 new jobs in February, defying analysts projections of an increase to 158 000 and after Januarys reading was revised sharply downward to 127 000 from earlier estimates of 175 000 added workers.

Also fanning negative sentiment, activity in the US sector of services grew at the weakest level since August 2010, with the corresponding PMI coming in at 51.6 in February, down from 54.0 in the previous month and confounding analysts expectations of a smaller decline to 53.5.

However, the Institute for Supply Management reported on Monday that manufacturing activity in the United States expanded at a faster than projected pace in February. The corresponding PMI advanced to a reading of 53.2 last month from 51.3 in January, while analysts had expected that the index will climb less, to 52.0 in February. Values above the key level of 50.0 are indicative of expansion in activity.

Elsewhere, having reached a session high at 1.3745 at 09:00 GMT, the pair erased daily gains to trade at 1.3729 at 12:42 GMT, losing 0.1 % for the day. Support was likely to be received at February 28th low, 1.3694, while resistance was to be encountered at March 4th high, 1.3782.