USD/CAD touches fresh 4-year highs on diverging central banks’ policies

The loonie, as the Canadian dollar is best known, plunged to lows unseen in more than 4 years, on diverging monetary policies by the Federal Reserve and Bank of Canada.

Having hit the strongest level since September 2009 at 1.1019 at 09:50 GMT, USD/CAD traded at 1.0985 at 13:54 GMT, gaining 0.33% for the day. Support was likely to be received at January 20th low, 1.0930, while resistance was to be encountered at September 4th 2009 high 1.1038.

The loonie drew support after a report by Statistics Canada today showed nations manufacturing shipments rose by 1.0%, exceeding the median analyst forecast of a 0.4% gain. In October the manufacturing shipments were revised downwards to a 0.7% advance.

However, a separate report revealed Canadian wholesale sales were flat in November, defying analysts projections of a 0.4% increase and after a 1.2% downward revised increase in October. The wholesale sales can be regarded as a leading indicator of consumer spending.

The Canadian dollar was recently under selling pressure after a series of downbeat reports increased bets that Bank of Canada may signal interest-rate cuts at the upcoming bank’s policy meeting tomorrow.

Meanwhile, greenback’s demand continued to be supported by a recent batch of overall upbeat reports, which increased bets for further cuts in Fed stimulus.

Data showed on Friday that US home construction slowed less than analysts had projected, while industrial output expanded for a fifth consecutive month. Only the consumer sentiment came at a lower-than-expected reading in January, but this was not enough to change the overall market consensus that Fed will continue tapering throughout 2014.

A report by the US Commerce Department, showed that housing starts decreased 9.8% to 999 000 annualized rate in December, after they have been revised to 1.11 million pace in the previous month, the strongest figure since November 2007. Analysts had expected that housing starts will decline to 985 000 in December. Building permits fell by 3% to a 986 000 pace.

Last year, builders began constructing 923 400 homes, which is 18.3% higher than a year ago and is the largest number since 2007, when 1.36 million houses were constructed.

At the same time, industrial production in the United States rose 0.3% in December on a monthly basis, in line with expectations, supported by overall recovery in manufacturing and mining sectors. On annual basis, industrial output expanded 3.7% in December, or 0.9% higher than the peak registered before the global recession. November’s result has been revised down to a 1.0% increase from 1.1% gain previously. In October and September, however, nation’s industrial production has been moderately revised up.

The release of worse-than-expected consumer sentiment data in January, slightly pressured the greenback’s demand. January’s preliminary reading of the Thomson Reuters/University of Michigan consumer sentiment index registered at 80.4, defying analysts’ projections for an advance to 83.5 from December’s final reading of 82.5.

Overall, the reports provided support to greenback’s demand, as they favored the view that the Federal Reserve Bank may continue tapering during the year. Central bank’s policy makers said on December 18th that they will reduce monthly asset purchases to $75 billion from $85 billion, underscoring improving labor market conditions.

The bank will probably continue to pare stimulus by $10 billion at each policy meeting before exiting the program in December, according to a Bloomberg News survey of 41 economists, conducted on January 10th. The Federal Open Market Committee is scheduled to meet next on January 28-29.

Elsewhere, having hit a session high at 1.6452 at 10:10 GMT, GBP/USD traded little changed at 1.6429 at 12:49 GMT, adding 0.01% on a daily basis. Support was likely to be received at January 20th low, 1.6396, while resistance was to be met at January 20th high, 1.6453.