USD/CAD Fundamental Analysis
Reading through the record of the Federal Open Market Committee’s October 23-24 gathering, and looking at the day’s fundamental releases, safety bets are seen likely to direct traders towards the US dollar and keep it above parity opposite its dollar neighbor. These add to fears over the fiscal cliff and the repercussions of which.
Minutes of the recent FOMC meeting show that “manufacturing production declined in the third quarter, and the rate of manufacturing capacity utilization edged down.” As well, “broader indicators of factory production, such as the diffusion indexes of new orders from the national and regional manufacturing surveys, remained subdued in recent months at levels consistent with only tepid increases in manufacturing output in the near term.”
Manufacturing data from Federal Reserve Bank of New York is projected to reveal a steeper dip for the current month. Economists estimate further drop from minus 6.2 in October to minus 7.2 this November. Another negative reading would extend manufacturing sentiment to a fourth month in the red. Over at Philadelphia, the Philly Fed Manufacturing Index is anticipated to ease down also. Manufacturing sentiment leapt to 5.7 points in October following five successive negative ratings, but looks to fall back to a grade of 1.1 this month.
Looking at the weekly unemployment claims report, a median estimate of 372,000 applied for unemployment insurance for the past week, up from the previous 355,000 figure. The FOMC acknowledged that other indicators of labor market conditions, which include jobless claims, “did not show decided improvement over the intermeeting period.” It is notable that recent data resemble that of the past month’s releases.
Moreover, downgrades of the credit rating of the world’s largest economy are possible should the US Congress and Washington fail to come into terms to avert the fiscal cliff. Says John Chambers, chairman of Standard & Poor’s sovereign rating committee, “the rating is in the hands of policymakers”. Interviews with Reuters since the November 6 presidential election yielded a high likelihood of all three major rating agencies cutting the US debt rating should a replay of the debacle in the budget process occur.
Further risk aversion is perceived, taking into considering the effects of these fundamental reports on the USD/CAD. A buy bias is advised, where technical price corrections are still likely to ensue.
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