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Forex - USD/CAD re-approaches 11-1/2 year peak before Fed

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Shutterstock photo - - The U.S. dollar rose against its Canadian counterpart on Wednesday, re-approaching a recent 11-1/2 year peak after strong U.S. housing data and ahead of the Federal Reserve's policy decision.

USD/CAD hit 1.3779 during early U.S. trade, the pair's highest since Monday; the pair subsequently consolidated at 1.3771, gaining 0.27%.

The pair was likely to find support at 1.3668, Tuesday's low and resistance at 1.3781, Monday's high and an 11-1/2 year peak.

The U.S. Commerce Department said that housing starts jumped 10.5% to hit 1.173 million units last month from October's total of 1.062 million units. Analysts had expected a rise 6.6% to 1.135 million.

Meanwhile, the number of building permits issued rose by 11.0% to 1.289 million units from October's total of 1.161 million, easily surpassing market expectations for a decline of 1.0% to 1.150 million units.

Most investors expect the U.S. central bank to raise interest rates for the first time since June 2006 at the conclusion of its meeting on Wednesday.

Higher interest rates would make the U.S. dollar more attractive to yield-seeking investors in the long run, but a rate hike could also trigger dollar selling in the immediate aftermath.

With a rate hike priced in investors are now focusing on how quickly the Fed will tighten monetary policy in 2016. The Fed has indicated that the pace of rate hikes will be gradual.

The loonie was lower against the euro, with EUR/CAD rising 0.21% to 1.5046.

In the euro zone, data showed that consumer price inflation rose 0.2% last month, up from a preliminary estimate of 0.1%. Euro zone inflation rose by 0.1% in October.

The rate has now been below 1% for 26 straight months, well under the European Central Bank's target of near but just under 2%.

The report came after research group Markit said its Flash Euro Zone Composite Output Index, which measures the combined output of both the manufacturing and service sectors, eased down from 54.2 in November to 54.0 in December, below forecasts for 54.2.

Earlier Wednesday, Markit said its preliminary German manufacturing PMI inched up to 53.0 this month from a final reading of 52.9 in November, while the preliminary services PMI dipped to 55.4 from 55.6. offers an extensive set of professional tools for the financial markets.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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