USD/CAD Fundamental Analysis
The Canadian dollar further breaks down under parity opposite the US dollar. Central bank remarks today are deemed to further influence waned demand for risk. Also, as the United States readies for President Obama’s State of the Union speech, the markets seem to be bracing themselves for budget discussions in the following months.
The market for the USDCAD currency pair has allowed price movement to reach a high of 1.0085, surpassing yesterday’s high of 1.0081. However, another bearish correction looks to be in the books in the short-term as the price index has already reached the overbought territory and looks to ease some of the bullish pressure. Nevertheless, the upside momentum is still looked forward to, especially as speeches from Federal Open Market Committee voting member Esther George and Bank of Canada’s Mark Carney come into play.
Traders are watching to see how the president addresses the “sequester,” or the automatic spending cuts that would kick in after March 1, if there is no action by Congress to stop them. Though analysts also expect to hear about jobs, climate change, defense, energy, immigration, gun control and the housing recovery, they all say that the president’s positioning on the topic will be important for the market. Such could even set the tone for the next couple of weeks as the sequestration deadline nears.
Meanwhile, following Federal Reserve Vice Chairman Janet Yellen’s speech yesterday, wherein she signaled that stimulus could outlast the Fed’s bond purchases on the option to hold interest rates near zero even after reaching near-term targets for inflation or unemployment, Kansas Fed President Esther George is concerned of the risks involved with such extended loose policy. In her recent speech, she highlighted the risk of financial instability and the risk of higher inflation in the long-run that could be caused by this monetary policy arrangement.
Before George’s speech is that of BOC chief Carney’s. In the latest release of the monetary policy report, Carney recognized that “the more muted inflation outlook and the beginnings of a more constructive evolution of imbalances in the household sector suggest that the timing of any such withdrawal is less imminent than previously anticipated.” This has held back the demand for the Loonie, in turn. A similar stance in today’s testimony before the House of Commons Standing Committee on Finance could further weaken the Canadian currency.
The effects of these speeches today could force the Loonie further away from parity with the Greenback, which suggests a buy position for the USDCAD. But it is best to wait for the technical correction to end before entering a buy on the currency pair, after the price index reached the overbought position.
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