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USD/CAD Trading above 20-day Average

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USD/CAD Trading above 20-day Average

The US dollar advanced for a second day against its northern counterpart, as a dearth of Canadian economic data in the early part of the week kept the greenback in the driver’s seat.

The USDCAD advanced to 1.0912, an increase of 0.13 percent. The pair rose to an intraday high of 1.0922. The trend index is strongly bearish, underlying existing concerns about the US dollar. Initial support is likely found at 1.0856 and resistance at 1.0929.

The pair is trading above the 20-day moving average with a neutral bias. Investors face strong sell signals at the 50-day (1.0891) and 100-day (1.1014) moving averages.

In economic news, US factory orders increased 0.7 percent in April, down from the previous month’s 1.5 percent clip. Economists forecast a drop to 0.5 percent.

Investors are still soft on the US dollar, as they continue to weigh latest economic developments against monetary policy. The Federal Reserve has not felt the urgency to shift monetary policy or even outline a timetable for when that might occur. However, the Fed could feel added pressure should Friday’s nonfarm payrolls report show further sign of labour market recovery.

The US Labor Department is expected to announce the creation of more than 200,000 private jobs in May, supporting the view the economy was recovering at a strong pace following a disappointing first quarter. Private payrolls increased 288,000 in April, the largest monthly climb in more than two years.

On the Canadian side of the border, no data have been released in the early part of the week. On Wednesday Statistics Canada will report on international trade for April. Economists forecast a slight increase in the trade surplus, led by higher exports.

The Bank of Canada will release its June rate statement Wednesday. While no change to the benchmark rate is expected, investors will examine the language of the release to determine the central bank’s outlook on interest rates. Canadian consumer inflation reached the central bank’s target of 2 percent in April, further diminishing the likelihood of a rate cut.

The BOC with Stephen Poloz at the helm has assumed a neutral stance on interest rates, but has stated repeatedly it is ready and willing to cut rates should the recovery lose momentum.

The BOC has held the overnight rate at 1 percent since September 2010.

According to Poloz, the Canadian economy won’t return to full capacity until the second half of 2015. Until then, growth could remain choppy. Canada’s gross domestic product advanced 1.2 percent annually in the first quarter, well below estimates, official data showed last week.

In US data, the ADP Institute will provide an advance estimate of employment change on Wednesday. Economists expect the ADP reading to signal the creation of more than 200,000 jobs in May.

The Institute for Supply Management will also release its monthly services PMI report Wednesday. Economists forecast a slight increase in service activity over the previous month. Markit Group will also release its monthly services PMI indicator.

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