USD/CAD Forecast: CAD calm for a change, all eyes on Poloz
|- The Canadian Dollar consolidated its previous moves.
- The all-important BOC decision is left, right, and center.
- The technical picture is marginally positive for the pair and the FX Poll of experts shows a slightly bearish bias on the pair in the short term.
This was the week: Treading water on trade
After the comeback in the previous week, the Canadian Dollar found some stability. Oil prices continued advancing but eventually lost some ground as inventory data showed a large build in crude oil inventories.
Canada slapped counter-tariffs on the US over the weekend and did so with "sorrow" as Foreign Minister Chrystia Freeland stated. The Canadian approach is not to escalate nor to stay put but instead respond in kind to every American move. There have been no further repercussions on the North American trade front. Mexico elected Andres Manuel Lopez Obrador as President, as expected. His rhetoric has relatively moderate.
The US went forward with imposing its tariffs on China, and the latter responded with counter-tariffs in what seemed like a reluctant move. Markets had already priced in these tit-for-tat moves ahead of the implementation.
Canada reported a considerable gain in jobs: 31.800 in June. However, wages fell short with 3.5% YoY after 3.9% last time.
America's jobs report disappointed in the same manner: 213,000 positions gained but wage growth stagnated at 2.8% YoY and rose by only 0.2% MoM. The USD/CAD endured choppy trading around the double-feature publications but did not change its positions too much once the dust settled.
Canadian events: BOC stands out
The Bank of Canada is set to raise the interest rates by 0.25% to 1.50%. The previous rate decision laid down thick hawkish hints towards this outcome, and BOC Governor Stephen Poloz reiterated the message. The decision is based on the recent upbeat economic activity and especially the acceleration in wage growth, which is due to manifest itself in inflation as well.
The BOC is aware of the downside risks to the economy posed by deteriorating relations with the US, which imports the vast majority of Canadian exports. Nevertheless, with very few signs of real economic impact at this stage, the BOC is set to march forward. A hike now will also give the BOC more leverage to cut rates if push comes to shove.
Also, Canada releases three housing figures during the week: housing starts and building permits on Tuesday, and the New Housing Price Index on Thursday.
Here is the Canadian calendar for this week.
US events: Inflation and consumer data
The week commences with the Consumer Credit report on Monday, but the first significant event is on Wednesday with the Producer Price Index, one day ahead of the Consumer Price Index on Thursday.
US Core CPI is projected to accelerate once again, supporting further rate hikes by the Fed. If the figure comes in as expected, changes in monthly Core CPI and the headline figures could also make a difference.
Friday features the preliminary version of consumer sentiment which has been stable of late around 98 points. Better consumer sentiment implies elevated consumption.
Here are the critical American events from the forex calendar:
USD/CAD Technical Analysis - Only slightly bullish
A bullish bias has accompanied the pair for quite a while, and it is beginning to wane now. While the USD/CAD is trading above the 50-day and 200-day Simple Moving Averages, the Relative Strength Index is flat around 50 and Momentum is lacking.
1.3125 was the high point in March and remains a meaningful level. Upside resistance awaits at 1.3250 which served as support when the pair traded at higher ground towards the end of June. The 2018 high of 1.3380 is a double top and a robust resistance level. Even higher, the round number of 1.35 is notable.
1.3100 supported the pair in the first week of July. Stronger support awaits at 1.3150 which capped the pair in late May. Below the round number of 1.3000, 1.2950 provided support just before the surge in mid-June.
USD/CAD Sentiment Poll
The FXStreet forex poll of experts shows a small bearish tendency on the pair, in line with the recent trend. Looking more closely, the experts are cautious reflecting high uncertainty around the Canadian dollar, very much in line with the uncertainty Canada has around trade.
Where next for USD/CAD?
The Canadian Dollar enjoyed the market calm, but this may not last for too long. Oil prices may have peaked out and trade concerns, especially North American ones, may return to the limelight. All in all, the C$ has room to the downside and the USD/CAD to the upside.
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