USD/CAD edges higher, trading close to two-month highs on Fed speculation

US dollar edged up against its Canadian counterpart and traded in proximity to two-month highs on Tuesday, as speculation continued to persist that recent strong data, released out of the United States, may prompt the Federal Reserve Bank to taper it monthly asset purchases soon.

USD/CAD touched a session high at 1.0509 at 11:55 GMT, also the pairs highest point since September 5th, after which consolidation followed at 1.0490, up 0.14% for the day. Support was likely to be received at November 8th low, 1.0444, while resistance was to be met at September 5th high, 1.0516.

The greenback has been continuously supported after on Friday the Bureau of Labor Statistics said that employers in the United States unexpectedly added more job positions than projected in October. Non-farm payrolls increased by 204 000 in October, well above the expected 120 000 new jobs and above the revised up number of 163 000 jobs, added in the previous month. This report added to the case that the Federal Reserve Bank may consider a scale back of its stimulus measures soon.

Currently the central bank purchases 85 billion US dollars of bonds each month in order to curb longer-term interest rates and also provide a boost to economic growth. Banks policymakers underscored the “underlying strength” in the US economy at the policy meeting in October, but they have also said that the pace of stimulus will be maintained until further evidence of progress is observed.

“The Fed is going to start tapering this year and hopefully finish it up by the end of next year, so I think we’ve seen the dollar regain some ground today, especially against the CAD,” said Eimear Daly, a currency-market analyst at Monex Europe Ltd., by phone from London, cited by Bloomberg News. “We’ve seen a backup in interest rates in the U.S., and that really backs up the Fed going in and cutting.”

The yield on Canadian 10-year government bonds fell to 2.63%, after having reached 2.65%, or the highest level since October 16th. At the same time, the yield on US 10-year bonds rose four basis points to reach 2.79%, or the highest level since September 18th.

Meanwhile, in October Royal Bank of Canada revised down its growth forecasts regarding the next two years and did not stress on the necessity for higher interest rates, something which had been mentioned in every policy statement for one year. The central bank has maintained its benchmark interest rate at 1% since 2010.

Elsewhere, the loonie, as Canadian dollar is also nicknamed, was lower against the euro, with EUR/CAD cross up 0.42% on a daily basis to trade at 1.4106 at 15:57 GMT. GBP/CAD pair was losing 0.23% to trade at 1.6715 at 16:00 GMT.