The US dollar maintained its upbeat momentum versus the Canadian dollar mostly throughout the past one week, with the bid tone increasing each day resulting in the pair giving a symmetrical triangle bullish break out on July 1. The strength in USD/CAD was further boosted on Tuesday after the traders resorted to greenback buying on rising risk-off trades amid ongoing Greek saga, especially after the outcome of Sunday’s Greek referendum.
Moreover, the USD bagged support from recent streak of upbeat US fundamentals including the latest ISM non-manufacturing PMI report. While loonie kept losses amid weaker oil prices and disappointing Canada’s purchasing activity report, while the Bank of Canada’s (BOC) Survey released on Monday also highlighted the lower oil prices continue to dampen economic prospect.
Looking ahead, we have a very data busy week with Fed’s minutes the main highlight although US calendar remains fairly light. While on the Canadian front, trade figures, housing data and labour market report will also be closely watched for further moves on the USD/CAD pair.
Today’s Canada’s trade figures are expected to show trade deficit to have narrowed slightly to C$2.5 billion after two months of large shortfalls. While the latest read on housing comes Thursday when Canada Mortgage and Housing Corp. reports June housing starts. Market expects weaker readings for the month, after building intentions and unused permits came in stronger in May.
On Friday, jobs numbers for June are due to be released. Employment is expected to fall modestly in June, according to BMO, which expects a decline of 10,000. The numbers are usually volatile. Canada added 58,900 jobs in May, as gains in manufacturing, health care and financial services offset weakness in the oil patch.
On expectations of weaker Canadian fundamentals due to be published in the week ahead, we expected the loonie to extend its downside bias, while better US macro data and anticipation of less dovish Fed minutes may continue to boost the USD bulls.
Further, oil prices snapped its rebound and fell back in red on Tuesday, resuming its broader downtrend amid persistent oversupply worries. Oil prices dipped to fresh three-month lows at $ 52.22 tracking losses in metals while Chinese stocks rout also dampened investors sentiment. While, the outcome of Greece's referendum over bailout terms hit the euro and boosted the US dollar, which weighed negatively on oil prices. Meanwhile, talks over Iran's nuclear program continue in Vienna, with market participants worried the country may flood the already oversupplied market with million of barrels of new oil if Western sanctions are lifted.
While markets also remain wary ahead of weekly supply data from the American Petroleum Institute (API) later in the day and the Energy Information Administration (EIA) as both agencies posted an unexpected increase in US crude stockpiles last week. Weaker oil prices continue to hurt the sentiment around the Canadian dollar as oil is Canada’s top export product.
Technically, USD/CAD extends its uptrend break above the triangle formation on daily charts and now looks to test 1.28 handle on strengthening US dollar paired with expectations of downbeat Canadian data releases this week. A break above the last the pair could retest 1.2836 (March 18 High) levels and beyond. The daily RSI hover s around 72 and aims higher suggesting more room for upside. While other technical indicators also back the case for further upward moves. However, if the said data flow surprises on the upside or the Fed minutes is read dovish by markets, then we could see USD/CAD rebounding sharply lower towards 1.2600 levels below which floors would open for a test of the triangle resistance-turned support located at 1.2515 levels.
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