Yesterday’s trade saw USD/CAD within the range of 1.3290-1.3371. The pair closed at 1.3333, up 0.11% on a daily basis, while marking its third consecutive trading day of gains. The daily high has been the highest level since September 30th, when a high of 1.3433 was registered.
At 10:11 GMT today USD/CAD was losing 0.09% for the day to trade at 1.3319. The pair touched a daily low at 1.3309 at 9:53 GMT, overshooting the range support level (S3). The pair has been above the weekly central pivot level for a second trading day in a row. A break and close above todays high of 1.3344 may send USD/CAD up for a test of Mondays high (1.3371).
On Tuesday USD/CAD trading may be influenced by a number of macroeconomic reports as listed below.
The annualized consumer inflation in the United States probably accelerated 0.1% in October, according to market expectations, after remaining flat in September. In monthly terms, the Consumer Price Index (CPI) probably rebounded in October, up 0.2%, following two months of decline in a row.
In September upward pressure came from cost of services less energy (up 2.7% year-on-year). Within the category, cost of shelter went up 3.2% year-on-year, cost of medical care rose 2.4% and cost of transportation services increased 2.2%. Additionally, consumers paid more for food in September (up at an annualized rate of 1.6%), according to the report by the Bureau of Labor Statistics. The largest downward pressure on the annual CPI came from prices of energy (down 18.4% in September from a year ago).
The CPI is based on a basket of goods and services bought and used by consumers on a daily basis. In the United States the Bureau of Labor Statistics (BLS) surveys the prices of 80 000 consumer items in order to calculate the index. The latter reflects prices of commonly purchased items by primarily urban households, which represent about 87% of the US population. The Bureau processes price data from 23 000 retail and service businesses.
The annualized core consumer inflation, which is stripped of prices of food and energy, probably remained steady at 1.9% in October, according to the median forecast by experts. It has been the highest annual core inflation since July 2014, when core consumer prices rose at an annual rate of 1.9%. This rate is usually reported as a seasonally adjusted figure, because consumer patterns are widely fluctuating in dependence on the time of the year. The Core CPI is the gauge, which the Federal Reserve Bank takes into account in order to adjust its monetary policy. The Fed uses the core CPI, because prices of food, oil and gas are highly volatile, while the central bank’s tools are slow-acting. In case, for example, prices of oil plunge considerably, this could result in a low rate of inflation, but the central bank will not take action until this decrease affects prices of other goods and services.
If the CPI tends to approach the inflation objective, set by the Federal Reserve and considered as providing price stability, or a level below but close to 2%, this will usually bolster the appeal of the US dollar.
The Bureau of Labor Statistics is to release the official CPI report at 13:30 GMT.
Industrial output, Capacity utilization
Industrial output in the United States probably expanded at a monthly rate of 0.1% in October, according to market expectations. If so, this would be the first increase in output in the past three months. In September industrial production contracted 0.2% from a month ago. Manufacturing production, which accounts for almost three quarters of total industrial production, shrank 0.1% in September, as the output of durable goods was 0.2% lower, while the production of non-durable goods remained steady. Mining sector output contracted 2% during the same period, because of considerable cuts in both the extraction of crude oil and the drilling of oil and gas wells. In addition, warmer-than-usual weather in September boosted the output of utilities by 1.3% month-on-month.
The index of industrial production reflects the change in overall inflation-adjusted value of output in the three major sectors mentioned above. The index is sensitive to consumer demand and interest rates. It is a coincident indicator, which means that changes in its levels generally echo similar shifts in overall economic activity. Therefore, a larger-than-projected monthly increase in the index would usually have a moderate bullish effect on the US dollar. The Board of Governors of the Federal Reserve is to release the production data at 14:15 GMT.
At the same time, capacity utilization rate in the country probably remained unchanged at 77.5% in October. It has been the lowest utilization rate since July 2011, when a level of 77.5% was reported. Lower rates of capacity utilization usually imply weaker inflationary pressure.
Bank of Canada Review
At 15:30 GMT Bank of Canada is to release its quarterly review of macroeconomic conditions in the country.
Bond Yield Spread
The yield on Canada’s 2-year government bonds went as high as 0.627% on November 16th, after which it closed at 0.614% to add 0.003 percentage point compared to November 13th. It has been the first increase in the past six trading days.
The yield on US 2-year government bonds climbed as high as 0.863% on November 16th, after which it closed at 0.855% to add 0.004 percentage point compared to November 13th. It has been the first gain in the past three trading days.
The spread between 2-year US and 2-year Canadian bond yields, which reflects the flow of funds in a short term, widened for a fourth consecutive trading day to reach 0.241% on November 16th from 0.240% on November 13th. The November 16th yield spread has been the largest one since September 16th, when the difference was 0.280%.
Meanwhile, the yield on Canada’s 10-year government bonds soared as high as 1.655% on November 16th, after which it slid to 1.649% at the close to lose 0.004 percentage point compared to November 13th. It has been the fifth consecutive trading day of decline.
The yield on US 10-year government bonds climbed as high as 2.278% on November 16th, after which it slipped to 2.275% at the close to remain unchanged compared to November 13th. It has been the first increase in the past five trading days.
The spread between 10-year US and 10-year Canadian bond yields expanded to 0.626% on November 16th from 0.622% on November 13th. The November 16th yield difference has been the largest one since November 10th, when the spread was 0.628%.
Daily and Weekly Pivot Levels
By employing the Camarilla calculation method, the daily pivot levels for USD/CAD are presented as follows:
R1 – 1.3340
R2 – 1.3349
R3 (range resistance) – 1.3355
R4 (range breakout) – 1.3378
S1 – 1.3326
S2 – 1.3318
S3 (range support) – 1.3310
S4 (range breakout) – 1.3288
By using the traditional method of calculation, the weekly pivot levels for USD/CAD are presented as follows:
Central Pivot Point – 1.3298
R1 – 1.3376
R2 – 1.3428
R3 – 1.3506
S1 – 1.3246
S2 – 1.3168
S3 – 1.3116