USD/CAD: Loonie Moves Higher As Ivey PMI Soars

 | Nov 07, 2013 12:37AM ET

The Canadian dollar has improved in Wednesday trading. The currency has recovered from yesterday's losses, as USD/CAD trades in the low-1.04 range in the North American session. In Canada, Building Permits rebounded nicely in October, but fell short of the estimate. However, the Ivey PMI was superb, hitting a five-month high. There are no major releases out of the US on Wednesday.

Canadian Building Permits tends to show sharp fluctuations, making accurate forecasts a tricky task. The indicator posted a gain of 1.7% in September, compared to a decline of 21.2% the month before. However, the markets had expected a gain of 7.8%. Ivey PMI, another key indicator, rose sharply, from 51.9 points in September to 62.8 in October. This crushed the estimate of 54.7 and was the strongest showing since June. The Canadian dollar responded positively to these readings, as USD/CAD dropped into the low-1.o4 range.

Although the Bank of Canada maintained interest rates at 1% at its last meeting, the removal of the tightening bias, which had been in place since April 2012, indicates that the Bank is in no hurry to raise interest rates for the foreseeable future. This could result in investors searching for greener pastures outside of Canada, which could have a negative impact on the Canadian dollar, which has been struggling lately.

The week started on a positive note for US key releases. The ISM Non-Manufacturing PMI rose to 55.4 points in October, up from 54.4 the month before. This beat the estimate of 54.0 points. We’ll get a look at Unemployment Claims and Non-Farm Payrolls later in the week, and if these numbers are strong, there is sure to be talk of QE tapering in December, as the Fed has said on numerous occasions that the employment market must improve before QE tapering can occur.

The Federal Reserve met for a policy meeting last week, the first since Congress reached an agreement on the debt ceiling and the shutdown. As expected, the Fed said that it would maintain QE at current levels of $85 billion each month. However, the Fed's policy statement was less dovish than expected, as the Fed noted that the economy was expanding "at a moderate pace" and left the door open for QE tapering in December. Still, the prevailing view in the markets is that short of a sharp turnaround in US numbers, QE tapering will be on hold until early 2014.