Outlook for USD/CAD cross during the upcoming week

The loonie, as the Canadian dollar is known, touched the lowest in 3-1/2 years against the US dollar, after BoC’s signal that interest rates may stay lower for an extended period of time, in contrast with Fed’s decision to let borrowing costs rise by cutting its bond-purchasing program by $10 billion.

Having hit a session high at 1.0737 at 13:41 GMT on Friday, the pairs highest since May 2010, USD/CAD closed the week at 1.0637, losing 0.25% for the day. Support was likely to be received at December 18th low, 1.0601, while resistance was to be encountered at May 26th 2010 high, 1.0745.

The Federal Reserve announced a plan to reduce the pace of its monthly asset purchases to $75 billion from $85 billion at its two-day policy meeting, concluded on Wednesday.

Fed Chairman Ben Bernanke announced that the central bank purchases will be divided between $40 billion in Treasuries and $35 billion in mortgage bonds starting from the beginning of 2014.

The Federal Reserve Bank decided also to keep its benchmark interest range unchanged at 0.00% to 0.25%. The central bank reassured that the benchmark rate will likely stay low, saying in its statement that “it likely will be appropriate to maintain the current target range for the federal funds rate well past the time that the unemployment rate declines below 6.5% percent, especially if projected inflation continues to run below the Committee’s 2% longer-run goal”.

“The mechanics of the dollar story are changing, the normalization of the U.S. growth story is getting attractive for global investors,” said Sebastien Galy, a New York-based senior foreign-exchange strategist at Societe Generale SA, cited by Bloomberg. Sebastien Galy added: “Investors are moving back their money to the dollar after years of selling the dollar. It’s a systemic shift that’s happening.”

On Friday, the US Bureau of Economic Analysis, released a report that showed the GDP grew at a revised 4.1% annualized rate in the third quarter, the strongest final reading since the fourth quarter of 2009 and up from preliminary estimates in November, which showed the GDP will rise 3.6% this month.

A separate report by the US Department of Commerce revealed the final Personal Consumption Expenditures for the third quarter rose to 2.0%, from preliminary estimates of 1.4% in November and up from analysts’ expectations of 1.4% increase.

The greenback was pressured on Thursday, after a report by the US Department of Labor revealed the number of people, who filed for unemployment benefits for the week ended December 14th, increased to 379 000 from 369 000 the previous week. Analysts projected that the number of jobless claims will decrease to 332 000.

A report by the National Association of Realtors, added pressure on the greenback, showing that home sales fell for a third straight month to a one-year low in November. Existing home sales slid to 4.9 million, trailing projections for a drop to 5.03 million from October’s 5.12 million used homes sold.

Meanwhile, on Friday Statistics Canada reported the nation’s CPI rose at an annualized rate of 0.9% in November, compared to a year ago, after a 0.7% increase in October. The rate missed Bank of Canadas target band of 1% to 3%, as exports declined and growth stagnated in 2013.

The data was released a few days after the BoC Governor Stephen Poloz, said in an interview for Bloomberg, that inflation has been “lower than we can explain” while exports and investment have disappointed. The central bank forecast that Canadian economy will not reach full output until probably the end of 2015.

According to 15 analysts in a Bloomberg survey, on December 23rd, Canada may report that its GDP slowed the pace in October to an annualized rate of 0.2%, from a 0.3% increase in September.

On Friday, the Canadian dollar was supported by crude oil, nation’s largest export, with prices touching a two-month high. Futures of crude oil increased by 2.8% to $99.32 per barrel in New York after touching $99.40, the highest since October 22nd.

USD/CAD cross may be influenced by a number of reports, scheduled for publication during next week, as follows:

On Monday (December 23rd), the United States will release reports on personal income and personal spending for November, accompanied by the core personal consumption expenditures (PCE) price index for the same month. The change in the core PCE price index in November, compared to a year ago will also be reported. The same day the University of Michigan will publish the results from its survey on consumer confidence for December.

Meanwhile, Canada will report the percentage change in its GDP on monthly and annual basis.

On Tuesday (December 24th), the durable goods orders, durable goods orders excluding transportation and those excluding defense in the US will be reported for November. A separate report will probably show that new home sales contracted to 435 000 in November, from 444 000 a month earlier.

Wednesday (December 25th) is an official holiday in Canada and the US due to Christmas Eve.

On Thursday (December 26th) the US Department of Labor will report the number of people who filed for unemployment benefits for the week ended December 21st. The initial jobless claims will probably increase to 382 000, from 379 000 last week.

On Friday (December 27th) no important economic indicators will be released out of Canada and the US.

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