Published: Tue, 03 Mar 2009 21:30:05 +0100

USD/CAD Unable to Break Through Psychological Barrier

(CEP News) - The U.S. dollar has been unable to break through key resistance levels against the Canadian dollar despite a weaker Canadian economic outlook.

The Canadian dollar has been under significant pressure since the Bank of Canada cut interest rates by 50 basis points on Tuesday. The loonie lost more than a full cent on the initial reaction to the cut and the bank's accompanying statement.

Currency strategists said the BOC released a very grim report, which helped to facilitate the dramatic selloff in the loonie. The bank's statement that the output gap might not close until early 2010 has caused some traders to question the relative strength of the domestic economy and the currency.

Although the loonie sold off sharply, USD/CAD was unable to test 1.30 CAD and is currently struggling to hold gains above 1.2900 CAD.

Sasha Tihanyi, currency strategist from Scotia Capital, said he expects 1.30 to continue to hold as a major resistance level. He added the pair has tested that level three times, which suggests a powerful selling position there.

"Fundamentally, we should probably be trading through that level but we aren't," he said. "Corporate's just really like to buy Canadian dollars at 1.30 [CAD]. I think that level represents very good value for them."

Shaun Osborne, chief currency strategist at TD, also does not expect the USD/CAD to break through 1.30 CAD despite rising momentum for the greenback. He said he continues to sell rallies in the cross until there is a clear break through 1.30.

However, Osborne said a clear break above 1.30 would probably lead to a push towards 1.35 CAD.

Euro/USD up 0.06 cents to 1.2584

USD/CAD down 0.26 cents to 1.2907

USD/Yen up 0.82 points to 98.27

GBP/USD up 0.19 cents to 1.4074

AUD/USD up 1.13 cents to 0.6413

Euro/Yen up 1.07 points to 123.64

Euro/GBP down 0.10 pence to 0.8939

GBP/CAD down 0.14 cents to 1.8164

CAD/Yen up 0.77 points to 76.13

Euro/CAD down 0.24 cents to 1.6243

The U.S. Dollar Index is down 0.03 points to 88.91

All data take at 3:27 p.m. EST

By Neils Christensen, neilsc@economicnews.ca, edited by Stephen Huebl, shuebl@economicnews.ca