Forex Market: USD/CAD pares daily advances as US consumer sentiment misses estimates

The loonie, as the Canadian dollar is best known trimmed daily losses against its US counterpart to trade little changed, following the release of a weaker-than-projected US consumer sentiment and wholesale prices data.

USD/CAD touched a session high at 1.1111 at 07:30 GMT, after which the pair trimmed daily gains to trade little changed at 1.1077 at 14:11 GMT, adding 0.03% on a daily basis. Support was likely to be found at March 13th low, 1.1044, while resistance was to be met at March 13th high, 1.1122.

Preliminary data showed today that US consumer confidence unexpectedly declined in March, with the corresponding Thomson Reuters/University of Michigan index of sentiment probably coming in at 79.9, down from a final reading of 81.6 in February and confounding analysts expectations of an increase to 82.0.

Also fanning negative sentiment, the US Bureau of Labor Statistics reported today that the producer price index of the country declined 0.1% in February, trailing analysts estimates of a 0.2% increase and after it rose 0.2% in the previous month. Year-over-year, wholesale prices advanced 0.9%, short of analysts projections of a 1.2% increase and down from a 1.2% gain in the 12 months through January.

The decline in US wholesale prices was broad-based, with clothing retailers, airlines and real-estate brokers all experiencing lower price pressure last month. The weak inflation data will probably give Fed officials more room to put low borrowing costs on hold, when they next meet on March 18-19th.

“There’s just very little inflation pressure in the pipeline,” Richard Moody, chief economist at Regions Financial Corp. in Birmingham, Alabama, said before the report, cited by Bloomberg. “Until we start paring down more of the slack in the global economy, it’s hard to really see a lot of inflation pressure out there.”

The PPI report released today was the second using a refined index that encompasses 75% of the US economy, up from just one third of all output for the old index, which took into account only goods. The new gauge, which hasnt been overhauled significantly since 1978, PPI now also reflects prices of services, government purchase, exports and construction.

Wholesale prices, excluding the volatile food and energy, declined 0.2% in February, confounding analysts expectations of a 0.1% increase and after they advanced 0.2% in the previous month. Yer-over-year, the index rose 1.1% in February from a year ago, down from a 1.3% increase in the previous month and trailing analysts estimates of a 1.4% gain.

Meanwhile, loonie’s demand was supported yesterday after Statistics Canada reported that prices of new houses increased in January by the most since May 2012. The corresponding New Housing Price Index (NHPI) rose 0.3% in January, after a 0.1% gain in December, mainly driven by strong increase in the Prairie region. Data also showed that the metropolitan region of Calgary was the top contributor to the January increase, with prices surging 1.3% compared to December. Builders reported that increased labor and material costs were the main reasons for the gain, the largest in the region since April 2007.

On annual basis, the NHPI rose 1.5% in January, following a 1.3% increase in the preceding month, marking the first gain as the pace of annual growth had been slowing since August. According to Statistics Canada, the two main contributors to the annual advance were again Calgary and also the combined metropolitan area of Toronto and Oshawa. Housing prices in Calgary increased by 7%, capping the highest annual advance since July 2007. In addition, the combined area of Toronto and Oshawa reported a 1.4% annualized increase in contractors’ selling prices for a third straight month.

Earlier in March, Bank of Canada kept its main interest rate unchanged at 1%, where it has remained since September 2010, citing weak exports and investment. The central bank also said the economy may slow its pace in the first quarter.

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. This came after December’s statement, which warned inflation rate may stay below Bank of Canada’s 2% target for a prolonged period of time, fueling speculation the central bank may cut interest rates.

Elsewhere, EUR/USD touched a session high at 1.3896 at 10:15 GMT, after which the pair consolidated at 1.3894, adding 0.18% for the day. Support was likely to be received at March 13th low, 1.3845, while resistance was to be encountered at March 13th high, 1.3966, also the pair’s strongest since October 2011.