Yesterday’s trade saw USD/CAD within the range of 1.3324-1.3437. The pair closed at 1.3364, going up 0.16% on a daily basis, while extending the gain from Friday. The daily high was a higher-high test of the high from September 30th and also the highest level since September 29th, when the pair went up as high as 1.3458.
At 10:13 GMT today USD/CAD was losing 0.07% for the day to trade at 1.3356. The pair touched a daily low at 1.3324 at 7:10 GMT, overshooting the range support level (S3). USD/CAD has been holding above the weekly central pivot level for a second consecutive trading day, while the high from Monday (1.3437) may serve as a short-term level of resistance.
On Tuesday USD/CAD trading may be influenced by the macroeconomic reports listed below.
Fundamentals
United States
Gross Domestic Product – second estimate
The second estimate of the US Gross Domestic Product probably pointed to an annualized rate of growth of 2.0% in the third quarter of 2015, according to the median forecast by analysts. The preliminary GDP estimate for Q3, reported on October 29th, pointed to an annual growth of 1.5%. In Q2 economy expanded at an annualized rate of 3.9%, according to final data. The preliminary report showed that growth was supported by higher business and consumer spending in Q3, while the change in private inventories had a negative contribution.
Real personal consumption expenditures rose 3.2% during the third quarter, following an increase by 3.2% in Q2, which added 2.2 percentage points to growth. Fixed investment expanded 2.9% in Q3, or slowing down from a 5.2% surge in the prior quarter, as growth in both residential and non-residential investment was lower.
Business entities accumulated inventories valued at USD 56.8 billion in the third quarter, or the lowest since Q1 2014 and considerably lower compared to inventories in Q2 (USD 113.5 billion). This low inventory buildup subtracted 1.44 percentage points from growth.
Government expenditures rose 1.7% in Q3, following a 2.6% growth in the preceding quarter.
US exports grew 1.9% in Q3, slowing down from a 5.1% growth in Q2. At the same time, imports rose 1.8% in Q3, slowing down from a 3% growth in the second quarter, which resulted in a neutral impact on GDP growth during the period, according to provisional data by the US Bureau of Economic Analysis (BEA).
In case the second GDP estimate outpaced market expectations in Q3, this would have a strong bullish effect on the US dollar, because of the heightened rate hike prospects. The BEA is to publish the revised GDP data at 13:30 GMT.
Consumer Confidence Index by the CB
Confidence among consumers in the United States probably improved in November, with the corresponding index coming in at a reading of 99.5, according to market expectations, from 97.6 in October. The latter has been the lowest index value since July, when the gauge was reported at 90.9.
This indicator measures the level of individuals confidence in the US economic development. It is considered as a leading indicator, as it gives an early insight into consumer spending, which accounts for almost two thirds of the nations GDP.
In case the index advanced more than anticipated, this would have a strong bullish effect on the US dollar, as higher confidence suggests a greater willingness to spend and, respectively, an accelerated economic growth. The Conference Board research group is to publish the official index reading at 15:00 GMT.
Bond Yield Spread
The yield on Canada’s 2-year government bonds went as high as 0.641% on November 23rd, or the highest level since September 19th (0.642%), after which it closed at 0.622% to add 0.005 percentage point compared to November 20th. It has been the first gain in the past three trading days.
The yield on US 2-year government bonds climbed as high as 0.946% on November 23rd, or the highest level since November 6th (0.958%), after which it closed at 0.827% to lose 9.4 basis points (0.094 percentage point) compared to November 20th. It has been the first drop in the past six trading days.
The spread between 2-year US and 2-year Canadian bond yields, which reflects the flow of funds in a short term, narrowed to 0.205% on November 23rd from 0.304% on November 20th. The November 23rd yield spread has been the lowest one since November 5th, when the difference was 0.200%.
Meanwhile, the yield on Canada’s 10-year government bonds soared as high as 1.662% on November 23rd, or the highest level since November 18th (1.673%), after which it slid to 1.612% at the close to lose 1.3 basis point (0.013 percentage point) compared to November 20th. It has been the eighth drop in the past eleven trading days.
The yield on US 10-year government bonds climbed as high as 2.297% on November 23rd, or the highest level since November 18th (2.299%), after which it slipped to 2.241% at the close to lose 2.3 basis points (0.023 percentage point) compared to November 20th. It has been the seventh drop in the past eleven trading days.
The spread between 10-year US and 10-year Canadian bond yields shrank to 0.629% on November 23rd from 0.639% on November 20th. The November 23rd yield difference has been the lowest one since November 19th, when the spread was 0.624%.
Taking into account the period January-October 2015 and basing our calculations on weekly closing prices, we came to the conclusion that USD/CAD performance and the development of the yield spread between 10-year bonds in the United States and Canada showed a correlation of 0.7326, or the pair and the spread moved strongly in one and the same direction. As the yield spread grew in favor of the 10-year US bonds, the US dollar gained ground against its Canadian counterpart. During the period January-October, USD/CAD has appreciated 10.20%, while the spread between 10-year bond yields in both countries has widened 104.39% to reach approximately 0.61% in late October from approximately 0.30% in early January.
Daily and Weekly Pivot Levels
By employing the Camarilla calculation method, the daily pivot levels for USD/CAD are presented as follows:
R1 – 1.3374
R2 – 1.3385
R3 (range resistance) – 1.3396
R4 (range breakout) – 1.3426
S1 – 1.3354
S2 – 1.3343
S3 (range support) – 1.3333
S4 (range breakout) – 1.3302
By using the traditional method of calculation, the weekly pivot levels for USD/CAD are presented as follows:
Central Pivot Point – 1.3319
R1 – 1.3396
R2 – 1.3449
R3 – 1.3526
S1 – 1.3266
S2 – 1.3189
S3 – 1.3136
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