USD/CAD edges above the September high

USD/CAD is an interesting chart at the moment as it attempts to break clear of the September high. So far, it’s edged just one pip above the Sept high of 1.3647 in the fifth day of gains.

The pair had looked like it was breaking down in August as US economic data sagged and then looked like it was breaking down further after the Fed cut by 50 basis points. However since then, US economic data has improved and the market is now seeing Fed funds bottoming at 3.25% or 3.50% instead of 2.75%.

Meanwhile, Canada’s economic data continues to deteriorate and housing inventory is piling up. The Bank of Canada has tipped an openness to a larger 50 bps cut in October.

In short, the US and Canadian economies are headed in opposite directions, at least relative to expectations.

The third parties in the trade are oil, which is rising on Middle East tension, and global growth, which is caught in China stimulus hopes. Today’s China news was less-stimulative and Hong Kong shares fell nearly 10%. If China sours and the Middle East sorts itself out without a war, then there are further upside risks for this pair.

This article was written by Adam Button at www.forexlive.com.