US and Canadian markets are back in action on Tuesday after the Labor Day holiday. USD/CAD is trading in the low-1.05 range in the North American session. In economic news, today’s highlight, US ISM Manufacturing PMI posted its best reading in over two years. There are no Canadian releases on Tuesday.
On Tuesday, the US released its first major event of the week, US ISM Manufacturing PMI. The index rose from 55.4 points in August to 55.7 points in September. This is the best reading we’ve seen since May 2011, and reflects continuing optimism by purchasing managers regarding the US manufacturing sector.
The markets displayed some volatility last week in anticipation of an expected US military strike against Syria, after a chemical attack in the war-torn country killed hundreds However, the attempt by the US to secure a coalition ran into trouble, and President Obama said on the weekend that he will seek Congressional approval before taking any action against Syria. With Congress in recess until September 9th, a military strike could be delayed until mid-September or even later. Meanwhile, the markets have settled down, as the threat of military action has receded.
When will the Federal Reserve taper QE? The Federal Reserve has not given any hints, and recent statements from Fed policymakers underscore divisions regarding the timing of such a move. What is clear is that stronger US numbers will increase the likelihood of the Fed acting sooner rather than later. This means that US releases, especially employment data, will be under the market microscope and traders should be prepared for the Fed to begin tapering at any time, which will likely bolster the US dollar.
September could be a rough month for the Canadian dollar. Risk assets such as the loonie tend to display volatility in the fall, and the increasing speculation about QE tapering as well as a possible US strike on Syria could drag down the Canadian dollar. The Canadian economy has not been able to keep pace with the US, leaving room for USD/CAD to continue to rise.
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USD/CAD Technicals" title="USDCAD Technical" width="594" height="74">- USD/CAD has edged lower in Tuesday trading.
- The pair continues to receive support at 1.0502, which is protecting the 1.05 line. This is followed by a support line at 1.0442.
- USD/CAD is facing resistance at 1.0573. This is a weak line and could be tested if the US dollar strengthens. This is followed by resistance at 1.0652. This line has remained intact since October 2011.
- Current range: 1.0502 to 1.0573
- Below: 1.0502, 1.0442, 1.0337 and 1.0282
- Above 1.0573, 1.0652, 1.0758 and 1.0888
USD/CAD ratio is pointing to movement towards short positions. This is reflected in the pair’ current movement, as the Canadian dollar has posted small gains against the US dollar in Tuesday trading. A solid majority of the positions are short, indicating a strong trader bias towards the Canadian dollar posting gains against the US currency.
The pair continues to trade quietly in the mid-1.05 range. Today’s key US PMI has already been released, so we can expect the pair to continue to show little movement during the day.
USD/CAD Fundamentals
- 13:00 US Final Manufacturing PMI. Estimate 53.9 points. Actual 53.1 points.
- 14:00 US ISM Manufacturing PMI. Estimate 54.2 points. Actual 55.7 points.
- 14:00 US Construction Spending. Estimate 0.3%. Actual 0.6%.
- 14:00 US ISM Manufacturing Prices. Estimate 51.6 points. Actual 54.0 points
*All release times are GMT
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