USD/CAD Fundamental Analysis
A concession by President Barack Obama to inch closer to a budget deal with House Speaker John Boehner has the markets gaining confidence to take on risky assets today. The US dollar is anticipated to close the day’s exchanges lower against the higher-yielding Canadian currency.
Hopeful signs of progress had US Stocks accelerate their gains in the final hour of trading to finish near session highs yesterday, with all key S&P sectors finishing in positive territory. The same was true of Asian shares earlier today as they posted gains on the fresh signs of a fiscal compromise. European equities also traded higher today after reports of the progress in the fiscal cliff negotiations.
President Obama and House Speaker Boehner held talks at the White House earlier yesterday, wherein aides from both parties said they were optimistic an agreement was shaping up. President Obama made a counter-offer to Republicans that included a major change in position on tax hikes for the wealthy, according to a source familiar with the talks. The US president lowered his tax revenue demand by $200 Billion and offered to start tax rate increases at $400,000 in income instead of $250,000. The revised plan would raise $1.2 Trillion in taxes in the next decade and cut $1.22 Trillion in spending. Further, President Obama wants a large enough debt ceiling increase for the next two years and would accept a new inflation yardstick that would reduce Social Security cost-of-living increases, said the person, who sought anonymity.
Brendan Buck, a spokesman for Mr. Boehner, said in a statement that, “any movement away from the unrealistic offers the president has made previously is a step in the right direction, but a proposal that includes $1.3 Trillion in revenue for only $930 Billion in spending cuts cannot be considered balanced.”
Though Obama and Boehner appeared to be edging closer to an agreement, substantial hurdles remain. Rank-and-file Republicans could have trouble with the tax increases on the wealthiest Americans that are likely to be part of any deal, while Obama could have a tough time selling spending cuts to his fellow Democrats. Nevertheless, signs that the fiscal cliff discussions are making progress are considered positive, especially as the deadline looms closer. The Greenback is then projected to give way to gains by the Loonie today.
Meanwhile, in the land of the Maple Leaf, data from Statistics Canada tomorrow is forecast to show improvements in the Northern economy. Wholesale Sales for the month of October is estimated to have rebounded 0.4 percent, after a drop of 1.4 percent in September. A stronger rate of change is perceived to assist the Loonie’s advances.
Considering these fundamentals, a short position is advised for the USDCAD, as the risk rally is perceived to extend through the New York exchanges. Be careful of probable technical price corrections, however.
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