USD/CAD trades in proximity to 6-1/2 month highs amid reinforced speculations of Fed tapering

The loonie, as the Canadian dollar is known, declined on Monday against its US counterpart amid bets the Fed might taper as early as next week. Speculations arouse that Fed officials, speaking later today may signal a Fed tapering is just around the corner.

USD/CAD hit a session high at 1.0670 at 14:38 GMT, having hit a 6-1/2 month high at 1.0778 last Wednesday. The pair traded close to its session high, at 1.0665 at 15:13 GMT, gaining 0.29% for the day. Support was likely to be received at December 6th low, 1.0622, while resistance was to be encountered at May 26th 2010 high, 1.0745.

Last Friday a number of economic indicators were released showing that US economy is strengthening at a faster-than-expected pace.

U.S. employers added more jobs last month than projected. Non-farm payrolls jumped to 203 000, confounding expectations of a lesser number of jobs, 183 000, while in October the job number has been downwardly revised to 200 000. The progress in the labor market will probably provide a spark for the US economy, analysts expected.

The recovering labor market led to improving sentiment and higher spending, despite a 0.1% decline in household income. Household spending, which accounts for 70% of the economy, rose by 0.3% in October, beating both projections and last month’s increase of 0.2%.

US average hourly earnings increased to 0.2% in November from the previous month to reach $24.15, a 2% yearly increase. Average weekly hours for all workers also increased, from 34.4 in October to 34.5 in November.

Jack Spitz, managing director of foreign exchange at National Bank of Canada, said, cited by Bloomberg: “With payrolls being plus 200,000 last Friday, the bar has been raised on the 18th of December for the start of tapering, it will put a bid to the U.S. dollar across the board, and, for Canada, it consolidates the bid against the Canadian dollar.”

A survey by the same media, showed that an increasing number of economists consider that the Federal Open Market Committee might begin reducing $85 billion in monthly bond purchases at next policy meeting on December 17-18. 34% of the economists surveyed December 6th expected a Fed tapering next week, compared to 17% in a November 8th survey.

Investors awaited the separate statements of the President of Federal Reserve Bank of St. Louis, James Bullard, the President of the Federal Reserve Bank of Richmond, Jeffrey Lacker and the President of the Federal Reserve Bank of Dalas, Richard Fisher due later today. These statements may provide further clues as to when the Fed will begin tapering its easing program.

Bullard already indicated a possible reduction in Fed stimulus at the policy meeting next week, while upbeat US employment data, announced on Friday, increased bets, favoring Fed tapering.

Meanwhile, the Canada Mortgage and Housing Corporation reported that the seasonally adjusted housing starts increased by 192 200 units in November, below analysts projections of an increase by 195 000. Last month the housing starts increased by 198 200, a downward revision from initially estimated 198 300 units. The report is based on a survey among the residents of cities with population of over 10 000 inhabitants and tracks only houses which are inhabited throughout the whole year, not just for the season.

Statistics Canada reported on Friday that the nation’s employment rose by 21 600 in November and the unemployment rate remained at 6.9%. The jobless rate held at a level, which was the lowest since 2008, for a third consecutive month, as employers hired new part-time workers. Analysts had predicted 12 000 new job positions and an unchanged jobless rate.

According to the data by Statistics Canada, almost all of the jobs added in November are a result of the 20 000 part-time positions, while full-time positions increased by mere 1 400.

This year part-time employment accounted for 46% of all job gains, while during the same period last year 99% of the jobs added were full-time.

Elsewhere, having hit the strongest level since October 31st at 1.3729 at 09:15 GMT, EUR/USD traded at 1.3725 at 12:58 GMT, gaining 0.15% for the day. Support was likely to be found at December 6th low, 1.3621, while resistance was to be met at October 31st high, 1.3738.

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