USD/CAD Forecast Oct. 3-7

USD/CAD recorded modest losses over the week, closing at the 1.31 line. This week’s highlights are Trade Balance and Employment Change. Here is an outlook on the major market-movers and an updated technical analysis for USD/CAD.

The Canadian dollar gained ground on Friday, as Canada’s GDP was stronger than expected. In the US, consumer confidence reports were very strong, but durable goods orders were quite mixed.

1. RBC Manufacturing PMI: Monday, 13:30. The indicator continues to point to very modest expansion in the manufacturing sector, with readings slightly above the 50-level. The estimate for the September reading stands at 51.5 points.

2. Trade Balance: Wednesday, 12:30. Trade Balance is closely monitored as it is linked to currency demand. Canada’s trade deficit improved to C$ 2.5 billion, beating the estimate of C$ 3.2 billion.

3. Building Permits: Thursday, 12:30.  This indicator tends to show significant volatility, making accurate forecasts a tricky task. In July, the indicator posted a gain of 0.8%, snapping a nasty streak of four straight declines.

4. BOC Senior Deputy Governor Carolyn Wilkins Speaks: Thursday, 15:50. Wilkins will deliver remarks at the University of Quebec. A speech which is more hawkish than expected is bullish for the Canadian dollar.

5. Employment Change: Friday, 12:30. The indicator rebounded in spectacular fashion in August, as the economy added 26.2 thousand jobs. This easily beat the estimate of 16.0 thousand. The unemployment rate edged up to 7.0 percent in August

6. Ivey PMI: Friday, 14:00. The PMI dropped to 52.3 in August, short of expectations and its lowest level in three months.

7. BoC Business Outlook Survey: Friday, 14:30. This quarterly report should be treated as a market-mover. The survey provides a snapshot of sentiment in the business sector, asking companies about their plans regarding hiring, spending and investment.

8. BOC Senior Deputy Governor Carolyn Wilkins Speaks: Saturday, 20:00. Wilkins will speak at the Institute of International Finance in Washington. The markets will be looking for clues regarding the BoE’s future monetary policy.

USD/CAD opened the week at 1.3151 and touched a high of 1.3280. USD/CAD then dropped sharply, falling to 1.3045, as support held at 1.2990 (discussed last week). The pair closed at 1.3100.

Technical lines, from top to bottom

1.3551 has provided resistance since March 2016.

1.3457 was a cap in September 2015.

1.3353 is next.

1.3219 was a cap in April. It remains an immediate resistance line.

1.3081 is providing support.

1.2990 held firm in support for a second straight week.

The round number of 1.2900 is next.

1.2804 was an important cushion after the Brexit vote in late June. It is the final support line for now.

I remain bullish on USD/CAD

The guessing game over a Fed rate hike will continue into the fall, with the odds of December hike priced in at about 50%. The US economy continues to outperform its northern neighbor, so the loonie will have trouble gaining ground, unless oil prices rise sharply.