Yesterday’s trade saw USD/CAD within the range of 1.4427-1.4591. The pair closed at 1.4568, inching up 0.02% on a daily basis. It has been the 12th consecutive trading day of gains.
At 9:00 GMT today USD/CAD was gaining 0.80% for the day to trade at 1.4684. The pair touched a daily high at 1.4690 at 8:58 GMT, overcoming the upper range breakout level (R4), and a daily low at 1.4552 during the early hours of the Asian trading session. The daily high has been the highest level since April 9th 2003, when a high of 1.4708 was registered. The latter may act as a short-term resistance, while a break and close above it may target the high from April 8th 2003 (1.4818). Support may be received at the hourly 21-period EMA (1.4596) and then – in the area around the current daily low (1.4564).
The Canadian dollar has recently been heavily pressured by a persistent decline in prices of crude oil. The commodity has fallen in 14 out of the past 23 trading days. Oil futures for March delivery were down 3.28% on the day to trade at $28.57 per barrel as of 9:19 GMT, after going down as low as $28.45 earlier. On January 19th the commodity touched a low of $28.21 per barrel, or a level unseen since late September 2003. Oil has slumped 22.84% so far during the current month.
On Wednesday USD/CAD trading may be influenced by the following macroeconomic reports and other events as listed below.
Fundamentals
United States
Housing starts, Building permits
The number of housing starts in the United States probably increased to 1.200 million units in December, according to market expectations, from the seasonally adjusted annual rate of 1.173 million during the prior month. If expectations were met, this would be the highest number of starts since September 2015, when a figure of 1.206 million was reported. In November starts of single-family houses rose at a monthly rate of 7.6% to 768 000, while starts of buildings with five units or more were 18.1% higher to reach 398 000. Housing starts increased 21.3% in the South and 6.3% in the West, but dropped 8.5% in the Northeast. Housing starts in the Midwest remained unchanged.
Housing starts represent a gauge to measure residential units, on which construction has already begun every month. A start in construction is defined as the foundation laying of a building and it encompasses residential housing primarily.
The number of building permits in the country probably dropped to 1.200 million in December from an annual level of 1.289 million in November. The latter has been the largest number of permits since June 2015, when a level of 1.343 million was reported. Single-family authorizations increased at a monthly rate of 1.1% to reach 723 000 units in November, while permits of units in buildings with five units or more were reported to have risen 30.8% to 539 000.
Building permits are permits, issued in order to allow excavation. An increase in the number of building permits and housing starts usually occurs a few months after mortgage rates in the country have been reduced. Authorizations are not required in all regions of the United States. Building permits, as an indicator, also provide clues in regard to demand in the US housing market. In case a higher-than-anticipated figure is reported, this would support demand for the US dollar. The official report is due out at 13:30 GMT.
Consumer inflation
The annualized consumer inflation in the United States probably accelerated to 0.8% in December, according to market expectations, from 0.5% in November. If so, it would be the highest rate of inflation since December 2014, when the annual CPI rose 0.8%. In monthly terms, the Consumer Price Index (CPI) probably remained flat for a second consecutive month in December, after going up 0.2% in October.
In November upward pressure came from cost of services less energy (up 2.9% year-on-year, following a 2.8% gain in October). Within the category, cost of shelter went up 3.2% year-on-year, cost of medical care rose 2.5% and cost of transportation services increased 2.3%. Additionally, consumers paid more for food in November (up at an annualized rate of 1.3%, but slowing down from a 1.6% increase in October), according to the report by the Bureau of Labor Statistics. The largest downward pressure on the annual CPI came from prices of energy (down 14.7% in November from a year ago, or a lesser decline compared to October).
The annualized core consumer inflation, which is stripped of prices of food and energy, probably accelerated to 2.1% in December, according to expectations, from 2.0% registered in November. If so, Decembers core inflation would be the highest since July 2012.
If the CPI tends to approach the inflation objective, set by the Federal Reserve and considered as providing price stability, or a level below but close to 2%, this will usually bolster the appeal of the US dollar, as it heightens the probability of monetary policy tightening.
The Bureau of Labor Statistics is to release the official CPI report at 13:30 GMT.
Canada
Manufacturing Shipments
Manufacturing sales in Canada probably increased for the first time in three months in November, going up at a monthly rate of 0.4%, according to market expectations. In October compared to September shipments were 1.1% lower. The Monthly Survey of Manufacturing features statistical data regarding sales of finished goods, inventories, unfilled orders and new orders in Canadas sector of manufacturing. About 10 500 items and 27 000 companies are encompassed.
Manufacturing sales are considered as an indicator of demand in the future. An increase in the number of goods and unsold inventories suggests, that demand is insufficient and vice versa. At the same time, a surge in sales (shipments) suggests a stronger demand. Therefore, in case shipments rose at a faster than projected pace, this might have a limited bullish impact on the Canadian dollar. Statistics Canada will release the official data at 13:30 GMT.
Bank of Canada policy decision and press conference
Bank of Canada’s (BoC) Governing Council probably left the target for the benchmark interest rate (overnight rate) without change at 0.50% at the policy meeting today, according to expectations. At its meeting on July 15th the central bank cut its benchmark by 0.25% to the current level, citing a lower outlook for growth and higher risks to financial stability. The Bank Rate was reduced to 0.75% from 1.00%, while the Deposit Rate was lowered to 0.25% from 0.50%.
At the December meeting all key rates were left intact, while risks to inflation were seen as balanced.
According to excerpts from the BoC Statement from December 2nd 2015: ”The economy continues to undergo a complex and lengthy adjustment to the decline in Canada’s terms of trade. This adjustment is being aided by the ongoing US recovery, a lower Canadian dollar and the Bank’s monetary policy easing this year. The resource sector is still contending with lower prices for commodities. In non-resource sectors, exports are picking up, particularly in exchange rate-sensitive categories. However, business investment continues to be weighed down by cuts in resource-sector spending. The labour market has been resilient at the national level, although with significant job losses in resource-producing regions. The Bank expects GDP growth to moderate in the fourth quarter of 2015 before moving to a rate above potential in 2016.”
”…inflation is in line with the Bank’s October outlook. Total CPI inflation remains near the bottom of the Bank’s target range, owing to declines in consumer energy prices. Core inflation is close to 2 per cent as the effects of the lower dollar and the output gap continue to offset each other.”
The official policy decision is scheduled to be announced at 15:00 GMT.
At 15:30 GMT Bank of Canada will release its Monetary Policy Report, while at 16:15 GMT the Banks Governor and Senior Deputy Governor will attend a press conference. As a result of ”exceptional circumstances”, and only this time, the statement by BoC Governor Stephen Poloz will be featured on the official website.
Bond Yield Spread
The yield on Canada’s 2-year government bonds went as high as 0.345% on January 19th, or the highest level since January 13th (0.356%), after which it closed at 0.291% to lose 1.8 basis points (0.018 percentage point) compared to January 18th. It has been the 15th drop in the past 24 trading days.
The yield on US 2-year government bonds climbed as high as 0.890% on January 19th, after which it closed at 0.870% to add 2 basis points (0.02 percentage point) compared to January 18th. It has been the 9th gain in the past 25 trading days.
The spread between 2-year US and 2-year Canadian bond yields, which reflects the flow of funds in a short term, widened to 0.579% on January 19th from 0.541% on January 18th. The January 19th yield spread has been the largest one since January 14th, when the difference was 0.583%.
Meanwhile, the yield on Canada’s 10-year government bonds soared as high as 1.213% on January 19th, after which it slid to 1.178% at the close to add 1.8 basis points (0.018 percentage point) compared to January 18th. It has been the 9th gain in the past 24 trading days and also a second consecutive one.
The yield on US 10-year government bonds climbed as high as 2.087% on January 19th, after which it slipped to 2.056% at the close to add 1.1 basis points (0.011 percentage point) compared to January 18th. It has been the 11th gain in the past 25 trading days and also a second consecutive one.
The spread between 10-year US and 10-year Canadian bond yields narrowed 0.878% on January 19th from 0.885% on January 18th. The January 19th yield difference has been the lowest one since January 14th, when the spread was 0.859%.
Daily and Weekly Pivot Levels
By employing the Camarilla calculation method, the daily pivot levels for USD/CAD are presented as follows:
R1 – 1.4583
R2 – 1.4598
R3 (range resistance) – 1.4613
R4 (range breakout) – 1.4658
S1 – 1.4553
S2 – 1.4538
S3 (range support) – 1.4523
S4 (range breakout) – 1.4478
By using the traditional method of calculation, the weekly pivot levels for USD/CAD are presented as follows:
Central Pivot Point – 1.4385
R1 – 1.4709
R2 – 1.4877
R3 – 1.5201
S1 – 1.4217
S2 – 1.3893
S3 – 1.3725
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