USD/CAD Forecast: After the CAD collapse, inflation may add insult to injury

• The USD/CAD made a sharp move higher, reaching the highest levels in 8 months on trade fears, weak Canadian data,  and a dovish speech by Poloz. 
• Inflation, retail sales and a speech by Wilkins stand out in the Canadian calendar. 
• The pair is nearing overbought territory after the big moves. 

Trade and Poloz plunged CAD

Tensions around trade have risen once again, and this weighed heavily on the Canadian Dollar. After the loonie enjoyed the exemptions on steel and aluminum, the reshuffle in the White House leans towards a more hawkish stance on foreign relations. The ouster of Secretary of State Rex Tillerson and the potential departure of two additional moderates worries markets.

President Trump insisted that Canada had a trade surplus with the US and made public his arguments with Canadian PM Justin Trudeau. NAFTA negotiations are going nowhere fast and Mexico began talking about a deal without the US. 

In Canada, New Home Sales dropped by 6.5% adding to a previous fall of 14.5%. The Governor of the Bank of Canada Stephen Poloz had a more significant impact by saying that the Canadian economy has room to grow further without creating inflation and that they are obliged to let it go through. 

All these factors sent the Canadian Dollar much lower.

Canadian events: Wilkins and inflation

Wholesales Sales start the week with an expected rebound after a dop last time. Things warm up only on Thursday when Deputy Governor Wilkins talks in Toronto. Wilkins had a significant influence on the loonie in the past.

The big dataset comes on Friday with inflation figures for February and the retail sales report for January. We already know that inflation fell remained unexciting in the US and also in the euro-zone and Canada may follow. Moreover, the BOC is now skeptical that inflation will rise.

Retail sales badly disappointed in December and given other figures for January, the current projections for a recovery may be optimistic. The data may hurt the loonie. 

Here are the upcoming events that will move the Canadian dollar as they appear on the forex calendar:

US events: All about the Fed

Fed Chair Jerome Powell makes his first rate decision, and it is going to be a rate hike, that is all but inevitable. The big question is: how many more hikes will there be in 2018? The previous dot-plot says three, but an upgrade to four in this event is also on the cards. 

Apart from the statement and the dot-plot, the Fed also publishes forecasts and Powell holds his first post-rate decision press conference. And the tone may differ between these events. See the full preview: Fed Preview: Dollar-friendly dot-plot before a Powell punishment?

Home sales data and more importantly Durable Goods Orders are also worth noting after the dust from the FOMC settles.

Here are the critical American events from the economic calendar

 

USD/CAD Technical Analysis - flirting with overbought territory

The USD/CAD made a convincing break above C$1.3000 and left dust behind it. Upon its approach to 1.3100, the pair is already close to the overbought territory, as shown by the RSI that is close to the 70 level. Will we see a pullback from here? Momentum is still quite strong.

Looking up beyond 1.3100, the 1.3180 level provided support back in June 2017 and is the next significant cap. 1.3320 was the high point of the range at that time but is still far off.

1.3000 now switches to support, and it is followed by the former triple top of 1.2920. Further below, 1.2810 was a low point in March after the pair was initially rejected from 1.3000.

Where next for USD/CAD?

We may see a correction of sorts as the pair is stretched technically and the Fed may not be incredibly hawkish. However, the trend remains to the upside, at least until the trade tensions calm.

. The FXStreet Forecast Poll shows a bearish sentiment on all timeframes, differing from the opinion expressed here that sees a drop only in the near term.