Yesterday’s trade saw USD/CAD within the range of 1.3308-1.3394. The pair closed at 1.3349, shedding 0.17% on a daily basis. It has been the first drop in the past three trading days. The daily high has been the highest level since November 23rd, when a daily high of 1.3437 was registered.
At 10:03 GMT today USD/CAD was losing 0.21% for the day to trade at 1.3335. The pair touched a daily low at 1.3311 at 9:15 GMT, undershooting the lower range breakout level (S4). It was also a higher-low test of the low from Monday. The pair may receive support within the 1.3280-1.3290 area, while the November 30th high of 1.3394 may act as a level of resistance.
On Monday USD/CAD trading may be influenced by a number of macroeconomic reports as listed below.
Fundamentals
United States
Manufacturing PMI by Markit – final reading
The final estimate of the Manufacturing Purchasing Managers Index for November probably confirmed the flash estimate of 52.6, which was reported on November 23rd. If expectations were met, this would be the lowest PMI reading since October 2013, when the final gauge was reported at 51.8. In October the final seasonally adjusted PMI stood at 54.1, inching up from a preliminary value of 54.0.
According to preliminary data by Markit, ”…manufacturing production growth moderated since the previous month and was slightly weaker than its average for 2015 so far. At the same time, latest data highlighted the softest expansion of incoming new work for just over two years. Reports from survey respondents generally cited acyclical slowdown in demand patterns and ongoing weakness in export sales. Reflecting this, the index measuring new orders from abroad dipped back inside negative territory in November. Lower levels of new work from abroad were linked to a combination of the strong dollar and weaker global economic conditions.”
”Manufacturing payroll numbers were reported to have increased again in November, continuing the trend seen for much of the past six years. However, the latest expansion of employment levels was only modest and weaker than seen on average over the recovery period. Softer rates of job hiring reflected greater caution in terms of the business outlook and reduced pressure on operating capacity. This was highlighted by a drop in backlogs of work for the first time in 12 months”, Markit stated.
Values above the key level of 50.0 indicate optimism (expanding activity). In case the final PMI for November confirmed or came below the preliminary reading, this would cause a moderate bearish impact on the US dollar. The final reading is due out at 14:45 GMT.
Manufacturing PMI by the ISM
Activity in United States’ manufacturing sector probably improved in November, with the corresponding manufacturing PMI coming in at a reading of 50.3, according to expectations, up from 50.1 in October. The latter has been the lowest PMI reading since May 2013, when the gauge was reported in the area of contraction (49.0).
The New Orders Index came in at 52.9 in October from 50.1 in September. The sub-gauge of production was reported at 52.9, advancing from 51.8 in September. The index of employment slid to a value of 47.6 in October from 50.5 in the preceding month. The gauge of prices was at 39.0 in October, up from 38.0 in September, which suggested lower prices of raw materials for a 12th month in a row. In October, 7 manufacturing industries reported growth, 9 reported contraction and 2 registered no change in conditions, according to the report by the Institute for Supply Management (ISM).
In case the Manufacturing PMI improved more than anticipated in November, this would have a moderate-to-strong bullish effect on the greenback. The Institute for Supply Management (ISM) is to release the official PMI reading at 15:00 GMT.
Canada
Gross Domestic Product
Canadian Gross Domestic Product (GDP) probably expanded at a rate of 2.3% in Q3 compared to the same quarter a year earlier, according to the median forecast by experts, following two consecutive quarters of contraction.
Household final consumption expenditure increased 0.6% in the second three months of the year, following a 0.1% expansion in Q1. At the same time, final domestic demand showed no change during the quarter, after shrinking 0.5% in the first three months.
Business gross capital formation shrank 2.0% in Q2, mainly due to a 3.1% drop in business investment in non-residential structures, machinery and equipment.
Business entities amassed inventories at the amount of CAD 7.1 billion in Q2, a slowdown from CAD 12.1 billion in Q1.
Canadas total exports of goods and services rose 0.1% in Q2, after a 0.3% decrease during the first three months of the year, while imports of goods and services shrank 0.4% during Q2, or at the same rate as in Q1, according to the report by Statistics Canada.
In case a faster-than-projected annualized rate of growth is reported in Q3, the loonie would receive support.
RBC Manufacturing PMI
At 14:30 GMT Royal Bank of Canada (RBC) is to report on manufacturing activity in November. The corresponding Manufacturing Purchasing Managers Index stood in the zone of contraction for the third straight month in October, coming in at a reading of 48.0. It has been the lowest level ever recorded, as gauges of output, new orders and employment marked a decline, while the sub-index of new export sales fell for the first time since April. The Manufacturing PMI stood at 48.6 in September.
The PMI report is based on data collected from monthly replies to questionnaires sent to supply managers in over 400 industrial companies. The PMI is a compound index based on five individual indexes: new orders, production, employment, delivery time, stocks of purchases. Values of the index above the key level of 50.0 indicate overall increase in activity in the sector, while readings below 50.0 are indicative of contraction in activity. PMIs are earlier indicators of economic conditions published on a monthly basis and are available much before the publication of relevant data from government authorities. This way they provide an earlier insight about economic development trends.
In case the gauge went deeper into the zone of contraction in November, this would have a moderate bearish effect on the Canadian dollar.
Bond Yield Spread
The yield on Canada’s 2-year government bonds went as high as 0.650% on November 30th, or the highest level since November 13th (0.657%), after which it closed at 0.631% to remain unchanged compared to November 27th.
The yield on US 2-year government bonds climbed as high as 0.954% on November 30th, or the highest level since November 6th (0.958%), after which it closed at 0.938% to add 1.2 basis points (0.012 percentage point) compared to November 27th. It has been the tenth gain in the past eleven 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 0.307% on November 30th from 0.295% on November 27th. The November 30th yield spread has been the largest one since November 26th, when the difference was 0.309%.
Meanwhile, the yield on Canada’s 10-year government bonds soared as high as 1.588% on November 30th, after which it slid to 1.570% at the close to add 0.002 percentage point compared to November 27th. It has been the first gain in the past four trading days.
The yield on US 10-year government bonds climbed as high as 2.245% on November 30th, or the highest level since November 25th (2.248%), after which it slipped to 2.215% at the close to lose 0.007 percentage point compared to November 27th. It has been the sixth consecutive trading day of decrease.
The spread between 10-year US and 10-year Canadian bond yields narrowed to 0.645% on November 30th from 0.654% on November 27th. The November 30th yield difference has been the lowest one since November 25th, when the spread was 0.644%.
Daily and Weekly Pivot Levels
By employing the Camarilla calculation method, the daily pivot levels for USD/CAD are presented as follows:
R1 – 1.3357
R2 – 1.3366
R3 (range resistance) – 1.3374
R4 (range breakout) – 1.3396
S1 – 1.3341
S2 – 1.3332
S3 (range support) – 1.3325
S4 (range breakout) – 1.3302
By using the traditional method of calculation, the weekly pivot levels for USD/CAD are presented as follows:
Central Pivot Point – 1.3362
R1 – 1.3447
R2 – 1.3523
R3 – 1.3608
S1 – 1.3286
S2 – 1.3201
S3 – 1.3125
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