USD/CAD Forecast Aug. 31-Sep. 4

USD/CAD gained strength early in the week but then retracted and was almost unchanged on the week, as the pair closed just under the 1.32 line. There are six events this week, highlighted by GDP and Employment Change. Here is an outlook on the major market-movers and an updated technical analysis for USD/CAD.

In the US, Preliminary GDP beat expectations but home sales and consumer sentiment disappointed. There were no major Canadian releases last week.

USD/CAD daily chart with support and resistance lines on it.

1. Current Account: Monday, 12:30.Current Account is closely linked to currency demand, as foreigners must purchase Canadian dollars to by Canadian goods and services. The indicator is released each quarter, magnifying the impact of each reading. In Q1, the current account deficit ballooned to C$ 17.5 billion, but this beat the estimate of a deficit of C$18.6 billion. A slight improvement is expected in Q2, with a forecast of C$-17.2 billion.

2. GDP: Tuesday, 12:30.GDP is one of the most important economic indicators, and an unexpected reading can have an immediate impact on the movement of USD/CAD. GDP has posted four declines in the past five readings, and came in at -0.2% in May. The markets are expecting better news from the June report, with an estimate of +0.2%.

3. Trade Balance: Thursday, 12:30. Canada’s trade deficit narrowed unexpectedly to C$-0.5 billion in June, beating expectations and marking the best reading since October 2014. However, the markets are braced for a softer reading in July, with an estimate of C$-1.4 billion.

4. Employment Change: Friday, 12:30. Employment Change bounced back in July, with a gain of 6.6 thousand. This was better than the estimate of 5.3 thousand. A small gain is expected in the August report, with an estimate of 2.0 thousand. The unemployment rate is expected to remain steady at 6.8%.

5. Labor Productivity: Friday, 12:30. This quarterly release measures the change in labor efficiency. The indicator has been steady and came in at -0.1% in Q1, short of the estimate of +0.2%. The forecast for Q2 is +0.1%.

6. Ivey PMI: Friday, 14:00. The week wraps up with Ivey PMI, a key indicator which should be treated as a market-mover. The index slipped to 52.9 points in July, which was better than the estimate of 51.8 points. The markets are expecting better news in the August report, with the estimate standing at 53.5 points.

* All times are GMT.

USD/CAD Technical Analysis

USD/CAD opened the week at 1.3220 and quickly climbed to a high of 1.3353. The pair showed strong volatility early in the week, dropping to a low of 1.3134 as it tested support at 1.3165. USD/CAD recovered and closed the week at 1.3196.

Technical lines, from top to bottom

We begin with resistance at 1.3587.

1.3443 was a cap in December 2003.

1.3346 has held firm since August 2004.

1.3213 was an important cap in early August.

1.3165 continues to be active and was tested during the week as the Canadian dollar flexed some muscle. It remains a weak support line and could see action early in the week.

1.3063 is protecting the symbolic line of 1.30.

1.2930 has held firm since late July.

1.2798 is the next line of support.

1.2673 is the final support line for now.

I am bullish on USD/CAD

The Canadian dollar held its own this week, but the US economy is in better shape than its Canadian counterpart. As well, falling oil prices will likely continue to weigh on the struggling Canadian dollar.